Patent filings up in China: What does that mean for the biopharma sector?

Print 03 March 2015
Shannon Ellis / BioWorld

SHANGHAI – China has seen a massive rise in patent filings over the last seven years, with the number of published patents growing an average of 16 percent annually.

That trend is due to goal-oriented government policy, relatively easy to file utility and design patents and a wave of activity coming from the high-tech sector. In a country that only had its first patent law in 1985, China is making up for lost time.

But even the more stringent invention applications have shown startling growth. China filed more than 600,000 invention patents in 2013, doubling the U.S., the next closest country, according to the recent report China's IQ (Innovation Quotient) Trends in Patenting and the Globalization of Chinese Innovation by Thomson Reuters.

Taking a close look at invention patents in the biotech sector shows a slightly different story: Overall patent numbers are small but growing at a rapid clip. Under the category of biomedical invention patents, the State Intellectual Property Office (SIPO) released numbers for 2010 and 2011, with the total numbers of patents reaching 3,292 and 4,504 respectively.

"The baseline 10 years ago [in China] was so low, virtually nonexistent, and now it cannot go anywhere but up," said Jacqueline Liu, managing director of Eagle IP Ltd. in Hong Kong, who holds a doctorate in cell biology. "China is catching up but is nowhere near what you would expect from a country of this size and GDP of this size."

There are a couple of reasons for that. For one, the pharmaceutical sector in China has been dominated by generics makers. That's a lucrative business and, meanwhile, many are reluctant to invest in risky new drug development and fail to see the value of investing in invention patents.

But China's new breed of biotech start-ups, helmed by returnees with experience in developed markets, understand the value of patents. For many, their business models rely on the prospect of licensing out innovative assets for global development or inking strategic partnerships with multinational corporations.

Generon (Shanghai) Corp., for instance, was determined from the outset that having internationally protected IP would be crucial to its later success. Focused on therapeutic recombinant proteins to treat cancer, autoimmune and inflammatory diseases, the company's goal from its first five-year plan was to have valuable assets in the form of patents. According to CEO Yuliang Huang, 10 years on, the firm has 70 patents with 30 filed globally.

Another example is Michael Yu, founder and CEO of Suzhou-based Innovent Biologics Inc. Not only an executive, he is the inventor of Oncorine, the world's first oncolytic virus product for head and neck cancer, and conbercept, China's first novel antibody product for ocular diseases. He has 64 patents; 40 of those are U.S. patents.

Taking it to the next level, BGI Shenzhen, a gene-sequencing powerhouse, has 730 applications worldwide, with 445 invention patents filed in China.

Another major factor in the rapidly growing number of biomedicine patents is the increasing quality of academic research, although not all universities are created equal in translating that into IP.

While some overly protective tech transfer offices may hoard the discovery going on inside their campus gates, China's top universities and institutes, such as the Chinese Academy of Science, Peking University or Fudan University, have had more than a decade's experience patenting innovations and working with global partners.

It can be expected that more academics will jump on the patent bandwagon given the government's targets to increase patent filing and the incentives that go along with it.

"Academics often file for political reasons," said Michael Lin, law partner specializing in life sciences at Marks & Clark Hong Kong. "It is said that every filing is worth three publications, so they are filing as much as they can. Most will file invention patents. The government pays for those filings. If someone is paying for your filing fees, you will file as much as you can, as often as you can, because it can help you get tenure."

STRICT RULES RESULT IN NARROW-BREADTH CLAIMS

But obtaining an invention patent is far from easy, and it's much more difficult than China's oft-maligned design and utility patents (which have a low threshold for inventiveness). For one, it can take three to five years for a biomedicine invention patent to be granted.

But both Liu and Lin said China's patent laws have harmonized with international norms. "They pretty much follow the wording of the European rules but interpret it a bit more strictly," Lin said.

"I think that the patent system and the Chinese patent law work reasonably well for biopharma invention," concurred Liu. "The Chinese patent office simply has an extremely rigid rule regarding data support at the time of filing, which results in restricted breadth of claims."

"The same application may get very broad claims in the U.S., moderate coverage in the EU, but in China they will only get coverage for whatever the example shows works," said Lin. "That is part of the problem that westerners feel in China; 'Yes, I can get my patent granted, but it may not be worth anything.'"

Lin points to the philosophical roots of the legal system when asked why the government is so reluctant to grant more broad claims. He said it is important to remember that "typical socialist thinking is everything is owned by the state for the good of the people."

"In China, the language says the government may grant you a patent," he explains. "It is a semantic distinction; basically, it means legally the burden of proof is on the applicant to show they have an invention."

In comparison, in the U.S., the burden of proof is with the examiner to show that an invention is not patentable.

Liu, who assisted Generon with that company's patent portfolio, found that, "in China, the tendency is for the patent office to restrict the genus claim, and it is extremely hard to get a broad genus claim if you only have data to show that a few of the species may have medical use."

While it is still early days in China's innovative drug space, it is not hard to extrapolate the downside for innovators and upside for would-be copycats once a narrow patent is published, which occurs after 18 months.

"You may come out with your blockbuster chemical A, but your competitor will come out with something similar to chemical A, just tweaked a little bit and has similar effects; it is going to be a biosimilar. It is going to be close, but you can't stop them," Lin said. "That is the worst thing for a biotech company: others piggybacking on your R&D where you have spent all your money."

TIME VS. DATA

Both legal experts advocate for having a China-specific patent strategy tailored to a company's specific needs, weighing the scales of taking the time to collect more data to support a broader claim vs. filing quickly to mark territory.

"I have seen patent applications that are 500-600 pages thick. That is going to be convincing to a Chinese examiner, and they are probably going to get a much broader claim for that, but it means they delayed their filing by six months or a year," said Lin.

But what good is a patent if companies can't litigate to protect it?

The good news is that successful patent litigation is on the rise, according to the Thomson Reuters report. In cases where one party is a foreigner in a patent case, the win rate is 75 percent. Lin said that is not surprising since foreigners take litigation very seriously and prepare to win.

For many Chinese companies, litigation may be used as a strategy to distract a competitor or "to use that legal case for pressure or leverage in some other business dispute."

"The other side doesn't really care because the mere filing of the patent litigation has caused the other guy to spend excess resources, or to be distracted and that was the real goal anyway," he said.

That could be a rational strategy. According to the China's IQ report, the average compensation rate in pharmaceutical cases is $30,000. Although the highest category of compensation in China, it is relatively low by international standards.

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