Second medical use patents and compensation for the delay in marketing authorisations: A curious case of Vietnam.
Please note that this version is a DRAFT only. This paper has been accepted (subject to revision) for publication on GRUR international. Please contact the author at anhvanvule@gmail.com for the full paper with footnotes.
1 Introduction
The beginning of IP globalisation was marked by the Paris Convention for the Protection of Industrial Property in 1883 and the Berne Convention for the Protection of Literary and Artistic Works in 1886. Since then, global IP governance was further strengthened by the WTO Agreement of Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 1995, setting minimum protection of Intellectual Property (IP) rights. TRIPS has tipped the balance in favour of the pharmaceutical industry by imposing a mandatory patent regime for medical products and processes for 20 years.
Since TRIPS “establishes minimum levels of protection that each government has to give to the IP of fellow WTO members”, it provides the “floor”, not the “ceiling” for international standards. For example, patents will be granted for new, inventive, and industrially applicable inventions, but the definitions of newness, non-obviousness and industrial application are left to the discretions of member states. They can freely determine whether a new formulation of medicine, a new combination of different compounds or a new way of drug delivery meets their criteria for patent eligibility. WTO members can extend the term of a patent beyond the prescribed 20-year period to compensate for the delay in the marketing authorisation. Taking advantage of TRIPS’ floor of IP protection, subsequent bilateral or regional free trade agreements (FTAs) have incorporated standards that are dubbed “TRIPS-plus” because they are higher than those required by TRIPS.
This article seeks to analyse the case study of Vietnam. It exemplifies how a country with a low level of technological development has responded to a new wave of FTAs. Since 2018, Vietnam has signed a series of FTAs: the CPTPP, the EVFTA, the UKVFTA, and the RCEP. All require TRIPS-plus standards on patent protection. There has been a concern that being a signatory in those FTAs will erode the access to medicines of the Vietnamese population. Given the country’s low bargaining power in trade negotiations, such a concern is not unfounded. For instance, Vietnam is the least developed economy among 11 members of the CPTPP as judged by GPD per capita. The history of TRIPS writing also supported the view that rich countries imposed stringent IP standards on poorer countries through political influence and economic linkage.
This article, however, argues that Vietnam, through its unusual legislative steps, avoids increasing patent protection for medicines without (yet) violating international obligations. Its practice will be analysed via two specific patent issues: second medical uses and compensation for the delay in marketing authorisations. This paper is divided into five sections. Section 2 will study the historical development of Vietnam’s patent law to appreciate its shift towards medicine patents. Section 3 will then provide an overview of the country’s pharmaceutical industry, explaining why Vietnam pursues its particular stance on second medical uses (Section 4) and compensation for the delay in the marketing authorisations (Section 5). Section 6 is conclusions.
2 The historical development of Vietnam’s patent law
The earliest patent system in Vietnam can be dated as far back as the late 19th century when the French government applied its 1884 patent law to Indo-China colonies, including Vietnam, while the patents were issued in France. Before the French colonisation, there had been no written record of any similar Vietnamese legal framework. Despite such early inception of the patent system, it was not until 1981, six years after the country’s reunification, that the first working patent system was enacted via Ordinance 31-CP, thus effectively becoming the first Vietnamese IP legislation.
Ordinance 31-CP provided two types of protection for an invention: a patent and an inventor’s certificate. If the former recognised the inventor as the patent owner and granted him exclusive rights, the latter only rewarded him with a right to be named as an inventor and limited remuneration calculated and imposed by the government which owned the patent. During this period, Vietnam was a staunchly communist country with a centrally planned economy; the concept of private ownership of tangible property did not exist concerning either tangible or intangible property.
Nevertheless, an economic crisis in Vietnam in the 1980s brought about a reform. In 1986, the government launched a political and economic reform campaign (Đổi Mới) to transform the economy from centrally planned to market-oriented. Vietnam’s newly created economic model has been officially known as a “Socialist-oriented market economy”. Đổi Mới led to an overhaul of the country’s legal system. Many areas of law, including IP, have shifted from the socialist-based model to those typically found in western legal systems. In 1989, the government enacted a new Ordinance on the Protection of Industrial Property, marking a turning point in IP protection in Vietnam. For the first time, the concept of “industrial property” was introduced. The government went as far as recognising patents as exclusive rights, putting an end to the inventor’s certificate.
In 1995, Vietnam got one step closer to gaining the market economy status by applying to become a WTO member. To comply with TRIPS, Vietnam enacted a Civil Code in the same year, recognising IP rights as civil rights. This marked another milestone in the development of IP law as IP rights became regulated by the Civil Code, the legislation having the highest legal status in Vietnam after the Constitution.
Despite the enactment of the Civil Code, IP-related provisions had been patchy and scattered over many legal documents. Not to mention, the requirements were not always consistent with each other. In 2005, two years before becoming a WTO member, Vietnam codified its first-ever IP Law to regulate all IP rights under a single legal instrument. The new law conformed with TRIPS and thus became closer to the standards of developed countries. For example, the protection term of patents, set to 15 years under Ordinance 1989, was duly extended to 20 years as required by TRIPS. The 2005 IP Law is the most comprehensive and detailed set of rules, marking the beginning of the globalisation era after 19 years of Vietnam’s economic transition/ It was a watershed event, marking Vietnam’s ten years to prepare for WTO membership.
Since then, the 2005 IP Law was amended twice, first in 2009 and again in 2019. A third amendment released in November 2020 has been under discussion. The two most recent amendments (in 2019 and 2020) aim to meet the TRIPS-plus standards in Vietnam’s new generation of FTAs. When the CPTPP became effective in January 2019, the government hurriedly adopted the amended law in June that year. Before the ink was dry; the government released the third amendment referenced earlier. This time it wanted to conform with the EVFTA and the RCEP. The EVFTA is regarded as “the most comprehensive trade agreement” between the EU and a developing country and accelerates the goal to achieve “the early recognition of Vietnam’s market economy status”. The RCEP forms the world’s largest trading bloc, representing almost a third of the global population and over $26 trillion in GDP.
In less than 20 years, Vietnam – a complete novice in the IP arena has taken significant legislative steps to satisfy the new FTAs’ high level of IP protection while the country’s social and economic infrastructure has not catered for such level. Rushed, piecemeal IP amendments have made the law premature, short-sighted, and perplexing. The legislators have struggled to balance between honouring Vietnam’s international IP commitments and safeguarding the public interest. Notably, Vietnam’s pharmaceutical industry is nowhere near accommodating stringent patent protection.
3 Vietnam’s pharmaceutical industry and its patenting activities
Like many countries in the developing world, Vietnam has a limited pharmaceutical industry. Although it has about 180 pharmaceutical manufacturing enterprises and 224 domestic manufacturing establishments, these companies rarely engage in R&D activities to make new products, technologies, and production processes. The country’s pharmaceutical industry conducts two main activities. They either make simple dosage forms, produce generic drugs with non-sophisticated components, or produce finished products from imported materials for foreign pharmaceutical companies.
Vietnam’s domestic industry, which heavily relies on imports, mainly from China and India, suffers from a growing trade deficit. It imports approximately 60% of pharmaceutical end products, 90% of active pharmaceutical ingredients and most raw materials. Local companies have R&D intensity as low as 5%, compared with 15% for foreign firms.
Patenting activities in the pharmaceutical industry also reflect the modest R&D investment of local companies. Foreign applicants file 90% of the country’s pharmaceutical patents, and only 10% are Vietnamese nationals. During 2006-2017, only 28 patents were granted to local inventors. In 2018, DHG PHARMA, the largest local pharmaceutical company, had no record of a patent in the industry despite its total asset value of approximately $190 million and net sale revenue of roughly $175 million.
Several reasons can expound why the country’s investment in pharmaceutical R&D activities is inadequate – with a higher threshold of adequacy defined as R&D spending of approx. 19% of revenues which is the average figure measured over the past two decades in the US. Firstly, Vietnam’s economy relies on agriculture, in which patenting is not considered essential for business operations. The country is one of the world’s largest paddy rice producers and the second-largest coffee exporter after Brazil. Secondly, the centrally planned economic model, which was long maintained in Vietnam coupled with the two-decade-long US embargo after the Vietnam war, has contributed to the low level of technological development. Last but not least, society at large lacks awareness of protecting their IP rights and respecting such rights of others.
To sum up, Vietnam’s pharmaceutical industry has reached an intermediate level of international integration where it can manufacture simple generics and export them to other countries. However, Vietnam must act quickly to reduce the pharmaceutical trade deficit and engage more in R&D activities for self-sufficiency.
The following sections will investigate two specific patent issues: the second medical uses and compensation for the delay in marketing authorisations since they have raised some concerns.
4 Second medical uses
* The Vietnamese version of this section can be found here.
Second medical use patents refer to the protection of new uses of a known pharmaceutical substance. Whether patent law should protect such an invention has long been the subject of much debate. In the US, further uses can be protected as a medical treatment method under Section 101 of the US Patent Code. In the EU, the situation is quite nuanced. Up until 2007, the European Patent Office (EPO) allowed the protection of “the use of substance X in the manufacture of a medicament for the treatment of disease Y”, also known as the “Swiss-style” claim. When the European Patent Convention (EPC) was revised in 2000 and came into force in 2007, the Swiss-style claim was no longer permitted as Article 54(5) now allows second (and subsequent) medical uses to be protected under the form “substance X for use in the treatment of disease Y” if the use is new and inventive. This form is also termed the “EPC 2000 claims”.
In Asia, the law on this issue varies from one jurisdiction to another. The Philippines and South Korea protect second medical use patents, but Indonesia does not. Indian authorities relied on Section 3(d) of the 1970 Indian Patents Act to reject the patent for such an invention on Glivec. For Vietnam, protection of second medical uses is deemed not available because national law is silent on this topic. It also excludes methods of medical treatment from patenting. However, the Vietnamese approach is much more complex than what has been believed because of its deliberate legal ambiguity. If national law plainly excludes second medical uses from patenting, the government might be, presumably, challenged by its trading partners. Being ambiguous, arguably, enables Vietnam’s patent office (National Office of Intellectual Property – NOIP) to quietly deny use patents without attracting much global attention, which happened in the case of Glivec.
Nevertheless, TRIPS-plus FTAs once demanded patent protection for second medical uses. The TPP, the predecessor of the CPTPP, required each party to make sure that “patents are available for […] new uses of a known product [emphasis added], new methods of using a known product, or new processes of using a known product.” This US-backed IP provision sparked controversy. However, due to the US withdrawal in 2017, this provision is suspended. CPTPP members specify that the removed provisions are only suspended, a distinction intended to signal that they could be reinstated if the United States decides to rejoin.
Before discussing relevant provisions of Vietnam’s 2005 IP Law, this part will firstly retrace Vietnam’s previous approach because the historical narrative will reveal a change in the country’s treatment of second medical uses.
4.1 The legal framework before the 2005 IP Law
Ordinance 31-CP, the first patent legislation after the Vietnam war, explicitly permitted patent protection for a new use of a known substance. However, such a permissive provision did not translate into more patents because pharmaceutical inventions were only granted the inventor’s certificate under Ordinance 31-CP. Meanwhile, what lies in the centre of patent law is exclusivity, the one that allows the owner to be the only beneficiary. The inventor’s certificate took away such a privilege; therefore, Vietnamese patent protection for new uses of medicines was virtually “toothless”.
In 2003, Vietnam adopted a by-law document – Circular No.30/2003/TT-KHCN. In contrast to Ordinance 31-CP, where the wording openly allowed patenting second medical uses, the language of Circular No.30/2003 was much vaguer. It stated that only a technical solution or the use of a technical solution is entitled to patentability. Implicit in such vagueness was the assumption that the use claim was a patentable subject matter. However, no record of such a granted patent was found under Circular No.30/2003.
Although there is no written account explaining why Vietnam protected second medical use, understanding its political and social-economic conditions in the early 2000s can shed some light. While Vietnam has never been classified as a least-developed country, it was a low-income country with a GNI per capita of $500 in 2003. Providing broad patent protection could be “a carrot” to attract foreign direct investment to Vietnam in the wake of the economic and political transformation of Đổi Mới. Moreover, Vietnam lacked IP expertise and the resources to assess the impact of such protection on access to medicines. Nevertheless, the number of patent applications filed with the NOIP was too insignificant to have a meaningful impact on public health.
4.2 The legal framework after the 2005 IP Law
Vietnamese laws possess a certain degree of linguistic ambiguity. So does the 2005 IP Law. It does not openly allow or exclude second medical use inventions. Article 4.12 defines an invention as a technical solution in the form of a product or a process intended to solve a problem by applying rules of nature. Article 59 excludes certain subject matters, including treatment methods, from patentability. Reading these two Articles together renders it unclear whether second medical uses are patent eligibility. Such ambivalence is particularly salient when compared with the clarity of the EPC. Article 53(c) of the EPC adopts similar exclusion for treatment methods but Article 54(5) grants patents for a new use provided that such use is not comprised in state of the art.
To clarify the ambiguity in the IP Law, the government issued a by-law document that provided further insights. Circular No.01/2007/TT-BKHCN, Point 25.5.d(i) reads as follows: “The essential feature of a technical solution can be a function, utility [emphasis added] …” Some practitioners were quick to happily assume that “utility” or a use is patentable if it amounts to an essential feature. The joy did not last long when Circular No.1/2007 was amended in 2016. A new sentence was quietly added to emphasise that “the functions and utility of a subject matter […] are not essential features, but are the purposes and results [emphasis added] achieved by that subject matter.” What is meant by that is anybody’s guess. One thing clear is that following this new provision, Vietnamese practitioners reluctantly accepted that the NOIP no longer allows second or further medical use claims.
However, the Regulation for Patent Examination detailed by the NOIP adds another layer of confusion and complexity to an already complex topic. Like other legal instruments, the Regulation is equally obscure and perplexing. It does not dismiss second medical uses at the formal examination stage but requires the patent examiner to consider if the claim (the invention) implies any change in the structure and composition of the product compared with the prior art. If the answer is no, the invention is not new. If the claim indicates some changes, such use might meet the threshold of newness.
The Regulation then goes further, stating that if the current form of a known substance is unsuitable for the use claim, the claim is new. If it is suitable, the claim is anticipated even though the substance may have never been described for that use (purpose). One exception to this provision is the exclusion from patenting applied to methods for prevention, diagnosis or treatment of disease practised on the human and animal body, however, apparatuses and compounds for the treatment of disease remain patentable.
Vietnamese lawmakers have tried very hard to address the controversy of second medical use patents. By not excluding such inventions from patenting, the government safeguards itself from a potential complaint of treating patentable subject matters differently. Such discriminatory treatment is banned under Article 27.1 of TRIPS. On the other hand, Vietnam’s attempt at addressing this issue has not been truly successful as the deliberate ambiguity has created a greater level of legal uncertainty.
4.3 The real test of second medical use
The country’s nonsensical approach was tested in the case of International Application No. PCT/JP2006/318675. This patent application entered the national phase in Vietnam in August 2008 under No. 1-2008-00901. The applicant, a Japanese company – Otsuka Pharmaceutical, applied for a patent involving a combination drug containing probucol and a tetrazolylalkoxy-dihydrocarbostyril derivative with superoxide suppressant effects. This medicine helps to prevent and treat cerebral infarction, arteriosclerosis, various renal diseases and diabetes.
In March 2014, the NOIP refused the application because the claims did not meet the novelty and inventiveness steps. The applicant filed an appeal against the decision in June. More than five years later, in November 2019, the NOIP issued Decision No.5698/QD-SHTT dismissing the appeal because the composition mentioned in the claim is anticipated in the prior art (D1: SEKIYA M. et al. American Journal of Cardiology 1998, Vol. 82, No. 2, 144-147, hereinafter: D1).
Although the appellant agreed with the NOIP that the composition was available in D1, D1 did not mention the potential treatment claimed by the invention. The NOIP, citing Point 25.5.d(i) of Circular No.1/2007 (as amended in 2016), counter-argued that the new treatment is not an essential feature of the invention but a result of its composition. Finding a new medical function of known components does not render an agent novel and inventive.
Otsuka Pharmaceutical argued that Vietnam must protect second medical use inventions as required by Article 27 of TRIPS. This Article obliges member states to grant patents for inventions in all technology fields except those contrary to public policy or morality (Article 27.2) or excluded subject matters (Article 27.3). The NOIP disagreed and claimed that the invention was refused because it does not meet the novelty and inventiveness thresholds in Article 27.1. The other parts of the Article are irrelevant since the subject matter is not prevented from commercial exploitation or an excluded subject matter.
Otsuka Pharmaceutical finally reasoned that since many patent offices such as the USPTO and the EPO have granted patents for the invention, it is patentable. The NOIP dismissed this argument stating that Vietnam’s patent law differs from counterparts in other countries, particularly concerning “the matter of new use of a known substance [emphasis added]”.
By Decision No.5698/QD-SHTT, Vietnam’s approach towards second medical use inventions has been firmly clarified. The current discussion on the IP law amendment does not modify the provisions concerning this type of invention; getting protection for medical second-use inventions remains challenging.
5 Compensation for the marketing approval delay
5.1 Pharmaceutical research and development
Developing a medicine is complex, laborious, costly and lengthy as it can take 10 to 15 years to place a safe and efficacious medicine on the market. A patented medicine is often wrongly believed to monopolise a market throughout 20 years of protection. However, there is a difference between the “theoretical” patent term and the “commercial” patent term. The “theoretical” term usually commences at the discovery stage, when scientists search for a “lead compound” that can potentially become a medicine. The sponsor company will file a patent application soon after the lead compound is found. To be patented, the new compound needs to be new, inventive, and to have industrial application, regardless of whether it proves to work safely and efficaciously on patients or not.
Nevertheless, if the company wishes to sell that medicine, it must obtain the corresponding marketing authorisation, taking up to twelve years. The “commercial” term begins when the company obtains the marketing authorisation to sell the medicine. As a result of the overlap between these two stages, the “theoretical” patent term starts much earlier than the “commercial” term. When the approved drug reaches the market, the “commercial” patent time may have less than half of its 20-year period left to run. Such a market delay between patenting and marketing a new medicine erodes the effective patent life.
5.2 Compensation for the delay in marketing authorisations
Many countries have adopted different regimes to compensate for the delay in marketing authorisations. The US’s Hatch-Waxman Act provides that a patent may be extended up to five years if the extension does not result in a total remaining patent term of more than 14 years. These 14 years are measured from the date the drug product receives the regulatory approval until patent expiration (with term extension). Similarly, Japan’s Patents Act allows an extension of up to five years from the date of patent grant or when the clinical trial starts, whichever is later, to the date of marketing approval. Unlike the US, a product would be eligible for patent extension under the Japanese Patents Act even if the product’s patent life after approval has 14 or more years.
The EU has a new form of compensation, the supplementary protection certificate (SPC). This sui generis IP right extends the patent term for specific pharmaceutical and plant protection products. An SPC will enter into force once the standard patent term expires. It has a duration equal to the delay period between patent filing and the grant of the marketing authorisation. If this period is less than five years, no SPC can be obtained. If this period is between five and ten years, an SPC up to five years may be granted. If the period is more than ten years, any SPC granted will have a maximum five-year term. The SPC aims to allow the right holder to “enjoy an overall maximum of 15 years of exclusivity from the time the medicinal product […] first obtains authorisation to be placed on the market in the Community.” Unlike the US and Japan, where the date of the patent grant and the duration of clinical testing are relevant to the patent extension, it is not the case in the EU.
5.3 Compensation required in the EVFTA and Vietnam’s proposed amendment
Through EVFTA, the EU successfully incorporated a compensation clause. Article 12.40.2 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.
As Vietnam’s current law does not operate any compensation scheme for such delay, the 2020 draft amendment put forward two options on which it is seeking public consultation. The amendment explicitly references the EVFTA to justify incorporating a new article – Article 131a.
Option 1
The patent holder will be waived the patent maintenance fee associated with the delay in obtaining the marketing authorisation. If the patent owner has paid the delay’s maintenance fee, 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.
The marketing authorisation procedure is considered to be delayed if the Drug Administration of Vietnam does not give the first response to the applicant without justifiable reasons after 24 months following the date of filing the marketing authorisation application. The delay period is counted after 24 months following the filing date and ends when the Drug Administration gives its first response. Under either circumstance, the compensation shall not exceed two years, as per Article 12.40.2.
The amendment is still under discussion at the time of writing (Jan 2022). Members of the Vietnamese Congress raised concerns that Article 131a needs to be consistent with Pharmacy Law to avoid adding more red tape to the marketing approval stage. Both options are problematic and undesirable from the patent holder’s perspective. As patent maintenance fees in Vietnam are set at nominal values, Option 1 is highly unattractive. The annual renewal fee for each independent claim for the first two years is approx. £10, with the subsequent two years costing £15. The cost increases every two years but is still modest.
Regarding Option 2, Vietnam has never issued any government use licence, although 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 in dealing with government use licensing, it will need to learn from the experience of other countries to establish what constitutes an adequate level of remuneration 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% of revenue. 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 of the two options is adopted in its current form, it is expected to generate a considerable amount of discontent amongst patent-holding companies who would only receive modest monetary compensation for the delay in obtaining the marketing authorisation. The principle of patent extensions applied by countries with an advanced pharmaceutical industry undoubtedly constitutes a more favourable arrangement from the standpoint of pharmaceutical companies. Since the EU already adopted a sui generis extension regime for pharmaceuticals, it would be reasonable for them to expect Vietnam to implement a similar policy. However, Vietnam’s proposal appears to pay lip service to the EU’s expectations. It is only a matter of time until this display of bad faith is brought to its reckoning.
6 Conclusions
Since IP is one of Vietnam’s newest yet fastest-growing areas of law, the government has struggled to keep pace with increasingly changing IP standards in the new generation of FTAs. Such struggle is evidenced by Vietnam’s repeated and short-sighted IP law amendments. The law is deliberately ambiguous, making it difficult to understand and apply. While clarity and precision are the matters of not only “good law” but also of legal certainty, these principles are being compromised by Vietnamese legislators. On the one hand, they want to respect the commitments in the FTAs, portraying Vietnam as an IP-respecting environment. On the other hand, they need to protect the wider national interest regarding medicine patents. As the domestic pharmaceutical industry is ill-prepared to compete against big pharma, language ambiguity and lip service have become Vietnam’s weapons of choice.
Image: Silver Ringvee on Unsplash.
