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Chinese Medicine: The Patent Dilemma Under the "Generic" System

Published:

2014-10-06

　　As the third year after joining the "WTO" organization, some have called this year the beginning of the "post-WTO transition period." After experiencing the adjustment period of the first two years, deep-seated issues in China's integration with the international community have gradually emerged, among which intellectual property has increasingly become an unavoidable focal issue.

　　This year, the dispute over Viagra between multinational pharmaceutical giant Pfizer and more than ten domestic pharmaceutical companies is seen by industry insiders as a landmark event signaling the emergence of the long-standing intellectual property bottleneck troubling China's pharmaceutical industry. In fact, it is a battle over intellectual property rights.

　　 It is understood that Pfizer took 10 years of research to invent Viagra, which was launched in the US in March 1998, has been sold in 112 countries worldwide, with prescription sales reaching 30 million USD. As early as 1994, Pfizer applied for intellectual property protection in China, with a term of 20 years. If Pfizer wins this patent dispute, it means that before 2014, Chinese pharmaceutical factories can only watch as Viagra, using the easily synthesized sildenafil citrate, dominates the market alone. Meanwhile, more than a dozen domestic pharmaceutical companies that have invested huge manpower, material resources, and financial resources in similar research will face significant losses, and the domestic market share of about 200 billion RMB will be handed over.

This possible outcome is just one of the bitter fruits of Chinese pharmaceutical companies' decades-long habit of copying foreign drugs, lacking innovation motivation, and having a weak concept of intellectual property protection.

　　The biggest characteristic of the pharmaceutical industry is its high dependence on patents and the high monopoly of patented drugs in developed countries, making intellectual property protection especially important. After China joined the WTO, it has already aligned with international standards in the field of pharmaceutical intellectual property. According to relevant WTO agreements, China must implement intellectual property protection regulations for over 100 member countries. According to intellectual property protection provisions, during the patent period, copying a new drug entitles the developer to claim compensation of 400 million to 1 billion USD, and buying out a patent license for a new drug requires payment of 5 to 6 million USD.

　　However, data provided by the Ministry of Health shows that China's pharmaceutical field has few patent applications, even fewer invention patents, and low patent quality; meanwhile, foreign pharmaceutical patents applied in China, especially invention patents, are increasing. Currently, among more than 10,000 drug patents in China, 80% are owned by foreign research institutions and enterprises, of which over 90% are invention patents.

Obviously, Chinese pharmaceutical companies, which develop by copying new drugs, face a dual dilemma brought by intellectual property: independently developing new drugs faces many difficulties such as funding and research; copying foreign drugs whose patent periods have expired is highly competitive with thin profits. Facing intellectual property, China's pharmaceutical industry faces a severe test.

　　Patent unconsciousness under the "copying" system

　　The lack of motivation and pressure for innovation among Chinese pharmaceutical companies is the main cause of the current situation.

For a long time, under the highly centralized planned system, Chinese pharmaceutical companies could not arrange production independently and lacked necessary market awareness. Although the long-term copying approach saved a lot of funds for developing new products, the "fast, good, cheap, and economical" copying system formed by enterprises has stifled their innovation ability.

　　Currently, there are not many enterprises in China capable of high-tech development research; even those that can conduct such research have relatively weak capabilities. Some enterprises lack awareness of the importance of R&D, overly rely on copying or importing, and lack the ability for secondary development. Data shows that currently 97% of chemical drugs produced by Chinese enterprises are copies.

　　It is precisely under this system that Chinese pharmaceutical companies generally have the problem of patent unconsciousness.

　　Many companies would rather spend huge manpower, material resources, and funds on product promotion and invest heavily in advertising through various media than invest in scientific research and intellectual property protection. For example, in the field of traditional Chinese medicine, patent applications mainly come from individuals, while enterprise applications are rare. Also, at the Canton Fairs in 2002 and 2003 after joining the WTO, intellectual property management departments still investigated 120 and 127 suspected patent infringement cases and 25 and 23 suspected trademark infringement cases respectively, showing no decrease compared to before joining the WTO.

　　Chinese universities and research institutes, which bear the heavy responsibility of scientific research, due to management systems and incentive mechanisms, generally emphasize papers over patents in state-funded research projects. Although government management departments at all levels have taken measures such as setting patent application targets, this tendency has not fundamentally changed. In fact, publishing papers is limited to basic research; for research results with industrialization prospects, if only papers are published first without applying for patents, it will cause loss of intellectual property, effectively giving away research results funded by the state to others for free.

　　Due to lack of knowledge about patent law and influenced by past passive protection and traditional concepts of secret ancestral formulas in traditional Chinese medicine, many pharmaceutical companies are unwilling to apply for patents, fearing that disclosure will leak their technical secrets, and prefer to protect their intellectual property through confidentiality. However, since drugs relate to public health, the public has the right to know about the drugs they take or use. Therefore, when applying for drug production licenses, the formula and process must be disclosed and meet safety, efficacy, and quality control standards for drug registration approval, making confidentiality difficult. Moreover, even if confidentiality measures are taken, once others independently develop and apply for patent protection, the confidential manufacturer, although having prior use rights, can only produce and use within the original scope and cannot license others or expand production, restricting the development of confidential technology and related enterprises.

　　At the same time, China's ability to create new drugs is weak, and the few innovative achievements that exist have not obtained timely patent protection due to weak patent awareness.

　　The two most typical and most criticized examples in the industry are as follows:

　　First, the antimalarial new drug artemisinin, developed by Chinese pharmaceutical scientists after more than ten years of hard research in the 1970s. This drug is a major invention in China's pharmaceutical field and the only new chemical drug in China recognized worldwide. However, at that time, China did not have the necessary conditions for intellectual property protection. After the research paper on artemisinin was published, foreign companies immediately made some structural modifications and applied for patents, turning what was originally a Chinese invention into foreign patents, causing China to suffer an annual export loss of 200 to 300 million USD from this alone.

　　Second, the invention of the two-step fermentation method for producing vitamin C in China. This is an invention with internationally advanced level, but due to weak intellectual property protection awareness, a foreign company that intended to buy this production technology for 5 million USD left without a word after learning no patent was applied for, only spending a few dozen RMB to buy the paper. A few years later, vitamin C produced abroad using this low-cost technology was sold in large quantities internationally, causing great losses to China's vitamin C export enterprises.

　　While there is a lack of patent awareness, there is also a phenomenon of rushing to apply for patents in the pharmaceutical industry, reflecting the current restlessness in the sector. For example, in the field of human genes, a southern company applied for more than 3,700 patents in just over a year around 2000, then suddenly went silent; similarly, in the field of nanotechnology, there have been cases in recent years where the same individual applied for nearly a thousand patents consecutively; furthermore, after the SARS outbreak last year, there was a rush to apply for patents on anti-SARS drugs in the pharmaceutical field.

　　Industry insiders point out that many of the rushed patent applications mentioned above did not undergo any scientific experiments and were merely immature preliminary ideas. They were not tested through experiments and failed to meet the minimum requirements stipulated by patent law that "the specification should provide a clear and complete description of the invention or utility model technology so that a person skilled in the relevant technical field can implement it." Therefore, they cannot ultimately obtain valid patent protection. Additionally, due to the first-to-file system, these defects of insufficient disclosure cannot be remedied by supplementing experimental data after the application date. As a result, some invention ideas are publicly disclosed in vain, potentially "making clothes for others," but failing to achieve the desired "fame and fortune."

　　The field of traditional Chinese medicine accounts for the highest proportion of domestic patent applications among all technical fields, maintaining about 96% before 1997, indicating China's significant advantage in traditional Chinese medicine research. However, very few patents for traditional Chinese medicine are applied for abroad; before joining the WTO, the number of foreign patent applications was only 0.35% of domestic applications. Even after joining the WTO, the patent awareness in the traditional Chinese medicine sector has generally improved, but in 2002, the proportion of foreign patent applications to domestic ones was only 0.6%, lower than the average of 2.4% across all technical fields.

　　In stark contrast, foreign companies, especially multinational pharmaceutical enterprises, have increasingly filed patent applications in China to capture the domestic market and fully enjoy the national treatment promised after China's WTO accession, using channels such as the PCT Patent Cooperation Treaty. They have even extended their reach into the traditional Chinese medicine field, which has long dominated domestic applications.

　　Can pharmaceutical companies rebuild the patent innovation system?

　　China's patent system started relatively late. In the pharmaceutical field, the patent law before 1993 only protected pharmaceutical production processes, excluding medicinal substances and varieties from patent protection. Coupled with weak patent awareness and insufficient attention to and training of patent professionals, there is a severe shortage of patent talent in China's pharmaceutical sector. There are few patent agents or patent lawyers in pharmaceutical companies, and dedicated patent management institutions are rare.

　　However, pharmaceutical companies in some developed countries mostly have dedicated patent departments, with patent work usually handled by patent agents and patent lawyers. For example, the famous American pharmaceutical company Merck has an intellectual property department with many patent lawyers and dozens of patent agents; Pfizer has a patent legal department with dozens of patent lawyers. Their functions include patent intelligence research, invention mining, patent application processing, patent dispute handling, and patent licensing trade. In China, such specialized talents are extremely scarce, and companies with these departments are few and far between.

　　For a long time, pharmaceutical research and development in China has mainly focused on imitation, with severe underfunding for new drug innovation. The pharmaceutical industry is considered a high-tech industry characterized by high knowledge and technology intensity, high capital intensity, high added value, good social benefits, high risk, rapid growth, and short product life cycles. Currently, developing a new chemical drug costs 800 million to 1 billion US dollars, and out of every 10 new drugs launched, only 3 on average are profitable, with only one being highly profitable. Moreover, it often takes more than ten years from drug screening to final product launch. Foreign large multinational companies invest about 15%-20% of their sales in new drug research and development annually. Chinese pharmaceutical companies usually invest only 1%, and cannot guarantee that this 1% is used exclusively for R&D, sacrificing the connotative expansion of the pharmaceutical industry. For example, a major player in China's pharmaceutical industry, North China Pharmaceutical Factory, spends only tens of millions of yuan annually on research and development.

　　Behind the lack of R&D funding is the absence of a venture capital mechanism in China's pharmaceutical industry. For a long time, R&D investment, especially early-stage investment, has been mainly state-driven, lacking support from venture capital funds. Without venture capital, some companies, even with good technology, lack funds for commercialization; even with good products, they lack financial strength for continuous updates and upgrades.

　　On one hand, research funding is very scarce; on the other hand, precious research funds have not produced maximum efficiency. Some research results obtained through concentrated manpower, material resources, and financial resources are shelved or disappear on their own, resulting in a long-term situation of high input but low output. Currently, China's high-tech commercialization rate is 25%, and industrialization rate is only 7%.

　　The price regulatory authorities' "one-size-fits-all" policy on drug profit margins also has significant drawbacks—it keeps prices of ordinary drugs that do not require R&D artificially high, while failing to ensure normal profits for innovative drugs, thus not effectively encouraging companies to invest in innovation.

　　Even in the field of imitation, China lacks smart imitation. In fact, independent intellectual property rights can also be generated during the imitation process. Japan continuously updates and improves imported technologies, deriving many dependent patents with Japanese characteristics around foreign basic patents, known as the "incremental policy." Through wise introduction and smart imitation, Japan has not only successfully promoted rapid economic growth but also become one of the world's recognized patent powers. The vast number of patents accumulated has laid a solid foundation for Japan to become a world economic power. Chinese pharmaceutical companies should learn from Japan's experience, integrate their own advantages during imitation, obtain independent intellectual property rights through re-creation, and stand on the shoulders of giants rather than cling to them.

　　Various signs indicate that after the large-scale entry of international pharmaceutical giants into China, they are now shifting from past industrial investments to R&D investments in China. On July 1 this year, Novo Nordisk, a world leader in diabetes treatment, established its China R&D center in Zhongguancun Life Science Park. At the same time, Roche, a multinational pharmaceutical company headquartered in Basel, Switzerland, also set up an R&D center in the Zhangjiang Hi-Tech Park in Pudong, Shanghai.

　　Industry experts analyze that multinational pharmaceutical companies have targeted China's "cost-effective" scientific research talent, strong research foundations in certain fields, and rich and unique disease resources. The main reason for setting up R&D institutions in China is to save costs, as recruiting researchers of the same level in China costs much less than abroad, and clinical costs in China are also much lower.

　　China, failing to make good use of its scientific research advantages, is being coveted by international pharmaceutical companies.

　　On the third anniversary of China's accession to the WTO, some media raised the question, "Has China's intellectual property truly become a global nuisance?" There are signs that the international community has begun a "reckoning" with China's intellectual property issues, and a storm over intellectual property is brewing. Against this backdrop, the difficulties faced by China's pharmaceutical industry will become even more severe, as it faces a life-or-death critical test.

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