Building BRICS – the pharmaceutical industry in the emerging markets - CHINA

1. Building BRICS – the pharmaceutical industry in the emerging markets - CHINA Presented by Catherine ZHENG, PartnerPTMG 83rd Conference October 2011

2. Overview • Challenges of drug name registrations as trademarks in China • Enforcement of counterfeit pharmaceutical products in China • Parallel importation

3. China Pharmaceutical Industry Market • Sales growing at the annual rate of 16 - 20%, expected sales of RMB110 billion by 2015 • On track to become the 3rd largest prescription drug market in 2012 • Generic drug and Chinese medicines - 70% of the market • Hospitals are major drug market, with highly fragmented drug distribution industry under consolidation

4. Governing laws and regulations of Pharmaceutical products • Drug Administration Law • Regulations for Implementation of the Drug Administration Law • Regulations on Administrative Protection for Pharmaceuticals • Provisions for Drug Advertisement Examination • Provisions for Drug Registration • Rules for Management of Labels and Direction of Use for Pharmaceuticals • Trademark Law (TML)

5. Challenges of drug name registrations as trademarks in China Three names of a drug: • generic name - national standards published by the State Food and Drug Administration (SFDA), INN and The Pharmacopoeia compiled by the Chinese Pharmacopoeia Commission • trade name - Since June 1 2006, only patented drug and drugs with new active components and new chemical structures can have a trade name. Must be composed of Chinese characters only • trade mark - Mandatory registration for pharmaceutical products from August 1984 (Article 6 of the Trademark Law and Article 27 of the Rules for Management of Labels and Direction of Use)

6. Challenges of drug name registrations as trademarks in China • Generic name of a drug as a trademark (Article 11 of the Trademark Law and Article 50 of the Measures for Administration of Drug) Southwest Drug Corporation (SDC) vs Trademark Review and Adjudication Board • Retrial by the Supreme Court (2009)

7. Challenges of drug name registrations as trademarks in China Trademarks under dispute:- • SARIDON and the Chinese version 散立痛 (pronounced as “san li tong”, meaning “powdered medicine / disperse; at once / to set up; pain”) • 散列通 (pronounced as “san lie tong”, meaning “powdered medicine / disperse; to line up; go through”) Rulings:- 1. SARIDON was a statutory generic name , and should not be established as unregistered mark upon use. 2. Registration of the mark “san lie tong” is maintained valid, as it is different from the marks “SARIDON” and “san li tong”.

8. Challenges of drug name registrations as trademarks in China 2. Descriptive words denoting the function, raw materials and targeted consumers for treatment Example: 脑心通 (meaning “brain, heart, through / open up”) 舒痛贴 (meaning “comfort, pain, patch (sticky)”)

9. Challenges of drug name registrations as trademarks in China 3. Chinese culture consideration Example: “Viagra in Chinese characters” “万艾可”(pronounced as “Wan Ai Ke with no meaning) vs “伟哥 (pronounced as “Wei Ge”, meaning “great brother”)

10. Challenges of drug name registrations as trademarks in China 4. Non-traditional pharmaceutical mark - 3D mark Example: Registration No. 3110761 in Class 5 Mark: (Blue Diamond 3D mark) Registrant: PFIZER PRODUCTS INC.

11. Challenges of drug name registrations as trademarks in China Pfizer Products Inc. (Plaintiff 1) Pfizer Pharmaceutical Manufacturing Inc. (Plaintiff 2) vs Beijing Health New Concept Pharmacy Ltd. (Defendant 1) Jiangsu Worldwide Pharmaceutical Holdings Co., Ltd. (Defendant 2) Guangzhou Weierman Pharmaceutical Co., Ltd. (Defendant 3)

12. Challenges of drug name registrations as trademarks in China Retrial by the Supreme Court (June 2009) Ruling:- In favour of Pfizer.

13. Enforcement of counterfeit pharmaceutical products in China Counterfeit pharmaceuticals The World Health Organization (WHO) • medicines which are “deliberately and fraudulently mislabeled with respect to identity and/or source.” Drug Administration Law in China • Fake Medicines vs Medicines of inferior quality

14. Enforcement of counterfeit pharmaceutical products in China Current pharmaceutical market in China:- • Counterfeit drugs are estimated to occupy approximately 10% of the Chinese market • The main offences included forged trademarks to simulate genuine products, or false descriptions of the actual ingredients of the drugs. • Price of counterfeit drugs is about 10 percent below the price of similar generic drugs http://www.france24.com/en/20110904-conterfeit-fake-drugs-medication-viagra-customs-high-tech

15. Enforcement of counterfeit pharmaceutical products in China Administrative Measures • Mandatory GMP Certification • Advertising Requirement • In 2007, the State Food and Drug Administration (SFDA) created a system for recording the advertising of pharmaceuticals, as well as medical devices and health foods. • API Producer Supervision • all API manufacturers must register the details of the transaction with the SFDA • information on the buyer, and the nature of the particular API involved.

16. Enforcement of counterfeit pharmaceutical products in China • Administrative Enforcement Actions by local FDAs and Administrations for Industry and Commerce (AICs) • More than 60 tonnes of fake and substandard pharmaceuticals and medical equipment, worth 40 million yuan (6 million U.S. dollars), were destroyed in January 2011 involved some 130 kinds of drugs and 3,000 pieces of equipment, including fake Viagra and capsules for diabetes. • Exposed 31 websites selling fake drugs over the Internet, as part of a crackdown which started in last November.

17. Enforcement of counterfeit pharmaceutical products in China Administrative Enforcement Actions 1.Local FDAs and Administrations for Industry and Commerce (AICs) • SFDA made public 90 typical drug-related intellectual property rights (IPR) infringement cases that involved more than RMB300 million (US$46 million). • Taobao.com, China's leading e-commerce platform, was ordered to stop selling pharmaceutical drugs on the website in July 2011 as the sellers have not obtained relevant official certificates • 245 illegal websites was shut down and 295 overseas sites for providing fake drug information was blocked by SFDA. 2. Customs • Top 10 IP protections Case in 2008 from the Customs Counterfeit “Viagra” and “Cialis” tablets via mail to 20 countries including US, UK, New Zealand, Switzerland, Greece through Fozhou Customs

18. Enforcement of counterfeit pharmaceutical products in China Civil Litigation Trademark infringement (Article 52TML) • to use a trademark that is identical with or similar to a registered trademark in respect of the identical or similar goods without the authorization from the trademark registrant;  • to sell goods that he knows bear a counterfeited registered trademark; • to counterfeit, or to make, without authorization, representations of a registered trademark of another person, or to sell such representations of a registered trademark as were counterfeited, or made without authorization;  • to replace, without the consent of the trademark registrant, its or his registered trademark and market again the goods bearing the replaced trademark; or  • to cause, in other respects, prejudice to the exclusive right of another person to use a registered trademark

19. Enforcement of counterfeit pharmaceutical products in China Criminal Protection (Art 141 and 142 of the Criminal Law) Liability of Fake Medicines • “production or sales of the fake medicines likely to causes seriously endanger to human health” – imprisonment for no more than 3 years and/or sentenced to a fine of 50% to 200% of the sales amount. • Serious harm – no more than 10 years • Extremely serious case – loss of human life – life imprisonment or even death penalty Liability of Inferior Medicines • “Production and Sales of inferior medicines – 3 to 10 years imprisonment and/or fine 50% to 200% of the sales amount; • extremely serious cases – no less than 10 years

20. Enforcement of counterfeit pharmaceutical products in China Civil Remedies (Art. 56 and 59 of TML) • Injunctions: preliminary and permanent • Damages: (1)Profits of the infringer during the infringing period, or (2)The losses suffered by the trademark owner during the infringing period, or (3) If the above cannot be ascertained, the Courts has discretion to render the statutory damages up to RMB$500,000 Criminal Remedies (Art. 213 and 214 of Criminal Law) • Fine • Imprisonment up to 7 years

21. Enforcement of counterfeit pharmaceutical products in China • 19 convictions for selling of counterfeit pharmaceuticals in 2010. • In July of 2007, Zheng Xiaoyu, the former director of the SFDA was prosecuted for taking over RMB6 million in bribes. • Police and FDA in Heilongjiang Province arrested 15 people in August of 2007, for nationwide counterfeit pharmaceutical production ring operating out of Haerbin. The counterfeiters were responsible for producing and distributing over 100 types of medications under 53 domestic brand names. • Higher People’s Court in Liaoning Province upheld a 15-year sentence for a former Provincial Food and Drug Administration director Zhang Shusen who was convicted of misappropriation of RMB300,000 in public funds and accepting more than RMB400,000 in bribes. Zhang had received RMB50,000 for mitigating the sentence of a drug counterfeiter based in Jilin.

22. Enforcement of counterfeit pharmaceutical products in China Further Consideration • Revision of the Drug Administration Law -regulating the management of drugstores -setting down measures for enforcing copycatting products -increasing fines and imprisonment terms • Third Amendment of the Trademark Law (Draft) -increased the statutory damage to up to RMB1M

23. Parallel Importation in China • Little legal basis on the issue of parallel importation in China • PRC Trademark Law does not provide an exemption for parallel importation • Silent area of law in the Trademark Laws • Exhaustion of trademark rights • broad consensus on domestic exhaustion of trademark rights - goods can be resale after the trademark owner first sold in the market • How about international exhaustion of trademark rights? • importing goods sold by the trademark owner in another country into China

24. Parallel Importation in China Exhaustion of trademark rights in Trademark Law (TML) • Not expressed in PRC TML • Exhaustion of patent rights is explicit in PRC Patent Law - Article 69(1) • Since “exhaustion of rights” is not addressed in PRC Trademark Law, trademark owner can prohibit resale under Article 52(1) of TML • Interpretation of use “without authorization” • e.g. Sales directly from trademark owner is authorized • How about parallel importation?

25. Parallel Importation in China Cases on Parallel Importation • Lux soap case Shanghai Unilever (SH Unilever) vs Guangzhou-based company (GZC) Ruling: Guangdong High People’s Court (1999) • Parallel importation defence was not supported by sufficient evidence • Held GZC liable on the ground of counterfeit trademarks

26. Parallel Importation in China Cases on Parallel Importation • AN’GE Clothing case Beijing Fahuayilin Trading Co., Ltd. vs Beijing Shiji Hengyuan Science & Trading Co., Ltd. Ruling: Beijing Second Intermediate People’s Court (2000) • The plaintiff avoided to sue under trademark infringement avoiding issues of parallel importation • Held defendants not liable to unfair competition

27. Parallel Importation in China Cases on Parallel Importation • Michelin Tyre case Michelin Group vs Individual Entity Tan Guoqiang and Ou Can Ruling: Changsha Intermediate People’s Court (2009) • One of the purposes of a trademark is guaranteeing quality of goods and sales of the goods in China could cause safety issues • Held that the Defendants are jointly liable to trademark infringement • Goods marketed in China “without authorization”

28. Parallel Importation in China? • Current Consultation Draft for third amendment of the Trademark Law still does not expressly address the parallel importation issue

29. Thank you for your participation Any Questions? Thank you