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Cablegate: Taiwan Pharma: Patent Linkage Going Nowhere

VZCZCXRO3449
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #2498/01 3230734
ZNR UUUUU ZZH
P 190734Z NOV 07 ZDS
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7399
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 TAIPEI 002498

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C O R R E C T E D C O P Y (ADD SENSITIVE CAPTION)

STATE PLEASE PASS TO AIT/W AND EAP/RSP/TC

STATE PASS USTR/DAVID KATZ AND CHRIS WILSON

USDOC FOR 4430/ITA/MAC

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E.O. 12958: N/A
TAGS: ETRD ECON KIPR TW
SUBJECT: Taiwan Pharma: Patent Linkage Going Nowhere


TAIPEI 00002498 001.2 OF 003


Reftel: Taipei 1788

Summary
--------

1. (SBU) Taiwan lacks a patent-linkage notification requirement and
allows generic-drug licensing before patent expiry, practices that
foreign pharmaceutical manufacturers claim allow local generic drug
makers to infringe on patent-holders' rights and, in some cases,
result in the Bureau of National Health Insurance (BNHI) reimbursing
pharmacies at an unfairly-high rate for generic drugs. The U.S. and
the Taipei American Chamber of Commerce have pushed the Taiwan
authorities to implement a U.S.-style patent-linkage system that
would continue to allow generic-drug testing before the original
drug's patent expiration, but would define a time period before
which generic-drug manufacturers cannot use patented data for
research or production trials; would enforce a "data-exclusivity"
period before which generics cannot use safety and efficacy data
provided by patent-holders to regulatory agencies; would require
generic-drug manufacturers to notify patent-holders before using the
patent-holder's intellectual property for research or trials; and
would prevent generic-drug makers from licensing a generic form of a
patented drug and getting a reimbursement price while the original
patent is still valid. However, the authorities responsible for
drafting amendments to Taiwan's laws to implement patent linkage do
not see a need for such a system in Taiwan and believe that the
Taiwan judicial system is adequate for protecting original-drug
manufacturers' IPR. Therefore, progress toward this reform would
require sustained U.S. engagement with Taiwan authorities. End
summary.

Patent Linkage: What is it?
---------------------------

2. (U) Patent linkage is a regulatory system whereby patent-holders
register pharmaceutical patents with a responsible agency
that--after a set period has passed--allows generic makers to use
the patented information for research and clinical trials as long as
the generic-drug maker notifies the patent-holder. Patent-linkage
systems also protect--again for a set period of time--the safety and
efficacy data that original-drug manufacturers provide to regulators
when the new drug is being considered for approval, the so-called
"data-exclusivity" period. Under a patent-linkage system, the
responsible agency will not allow a generic-drug maker to begin
marketing or selling a knock-off drug until the original patent and
data-exclusivity period have both expired, or a responsible
government body rules that the patents have not been infringed upon
or are invalid.

3. (U) In the United States, the responsible agency is the Food and
Drug Administration (FDA), which, in consultation with the Patent
and Trade Office (USPTO), compiles pharmaceutical patents and
information on the patent-holders in its "Orange Book." When a
generic manufacturer begins research or clinical trials using drugs
or processes that have been patented in the United States and
included in the Orange Book, U.S. law requires the manufacturer to
notify the patent-holder. This notification system allows
patent-holders to ensure that generic makers are respecting
intellectual property rights and do not use patented information to
bring a knock-off drug to market before the original patent and
data-exclusivity periods expire.

How Would Taiwan Implement It?
-------------------------------

4. (U) If Taiwan wanted to adopt a U.S.-style patent-linkage system
for protecting pharmaceutical patents, the Taiwan Intellectual
Property Office (TIPO) would submit an amendment to Patent Act
Article 57 to the Executive Yuan for approval and submission to the
Legislative Yuan, and the Department of Health (DOH) would do the
same to Article 40 of the Pharmaceutical Affairs Law. The
amendments would allow companies intending to register a generic
version of a drug with BNHI to use the patented information to
conduct research and trials, but would not allow the generic maker
to register the knock-off drug before the expiry of the original
drug's patent term without the patent holder's consent. The
amendment would also designate an official "competent authority"
with oversight of the patent-linkage system to notify the
patent-holder and holder of the license for the original drug of the
same ingredients, so that they would be able to monitor any
potential violations of their patent or license.

Why Does Taiwan Need It?
------------------------


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5. (U) Taiwan does not have an original-drug industry, and foreign
drug-makers claim that Taiwan's pharmaceutical laws often favor the
island's large off-patent drug-manufacturing sector. For example,
although Taiwan law does not allow pharmaceutical companies to sell
a generic drug until the original drug's patent has expired, the DOH
does allow generic makers to use patented information to produce
drugs for clinical trials and other pre-production research and then
apply for a license for the generic before the expiration of the
original drug's patents. With the license, the knock-off
manufacturer can then apply for a reimbursement price from the
Bureau of National Health Insurance (BNHI), a price that will not be
re-evaluated by subsequent BNHI price-volume surveys (PVS) until
after the drug comes onto the market.

6. (SBU) Original manufacturers claim that this often gives a
generic manufacturer an unfairly high price vis-a-vis the original
drug during the time between the expiry of the original patent and
the subsequent price-reduction on the generic drug by the next BNHI
drug price-volume survey (PVS). [Please see reftel for an overview
of the PVS system. End note.] For example, the patent for the
Pfizer product Lipitor will not expire until 2016, but one generic
manufacturer has already secured a production license and BNHI
reimbursement price on a knock-off version. In another case, before
the patent on Pfizer's anti-hypertension drug Norvasc expired in
March 2007, 17 local generic-drug manufacturers had--unknown to
Pfizer--already used the company's IPR to produce, register, and
receive BNHI prices for generic versions. A U.S.-style
patent-linkage system would not allow a generic to be licensed until
the original drug's patent expires, thus eliminating this "loophole"
in Taiwan's current drug-pricing system.

7. (SBU) Patent linkage would also benefit original-drug
manufacturers by ensuring that generic-drug manufacturers
automatically notify original makers as the generic makers start
research on and begin filing applications for marketing
authorization of a knock-off drug. Foreign makers claim that the
current lack of such notification allows local manufacturers to use
patented information to research, produce, and, in some cases, bring
to market drugs that are based on an original makers' intellectual
property, all without the patent-holder's consent or knowledge. In
addition to the Pfizer case above, original-drug manufacturers point
to several ongoing legal cases in which BNHI mistakenly allowed a
generic drug to come to market before the patent it was based on
expired. The patent on the Bristol-Myers Squibb (BMS) drug Plavix
will expire in 2018, but BMS claims that three generics that use the
company's intellectual property are already on the market. [Note:
Plavix's patent-holder is a French company, but BMS has a license to
produce it in Taiwan. End note.] Eli Lilly claims that Taiwan's
Tungyang Chemical Industries Company illegally used an Eli Lilly
process patent to bring a drug to market in 2003, and has been
fighting an expensive legal battle with Tungyang in the Taiwan
courts for over four years.

8. (SBU) These U.S. companies told us that a U.S.-style
patent-linkage system would have notified them of these IPR
infringements early enough to take action against the local
companies, and would also have prevented the generics from reaching
the market until after the expiry of the original patents. Although
these companies are not able to estimate for us how much Taiwan's
lack of such a system has cost them, the International
Research-based Pharmaceutical Manufactures Association (IRPMA),
foreign drug-makers' industry group in Taiwan, recently asked its
members to calculate the number of each member company's drugs that
would have benefited from having patent linkage in Taiwan, as well
as the estimated losses each company has suffered as a result.

BOPA, TIPO, BNHI Don't Want to Bother
-------------------------------------

9. (SBU) Econoff met recently with Dr. Chi-chou Liao BOPA's Director
General for Pharmaceutical Affairs, to discuss BOPA's view of patent
linkage. Dr. Liao believes that a U.S.-style patent-linkage would
be overly-complicated and would require a high level of patent
knowledge on the part of the Taiwan authorities that the island
simply doesn't have. Dr. Liao told us that BOPA is also concerned
that BOPA would face lawsuits for any mistakes or misconduct that
the Bureau or its officials might make in compiling an Orange Book,
going through notification procedures, or ensuring enforcement of
the patent-linkage mechanism.

10. (SBU) Dr. Liao told econoff that instead of creating such a
complicated system to enhance IPR protection, Taiwan would be better
off simply ensuring that Taiwan's Intellectual Property (IP)
Court--which will begin hearing cases in July 2008--has prosecutors
and judges with enough pharmaceutical expertise to properly handle

TAIPEI 00002498 003.2 OF 003


patent-infringement disputes using current Taiwan laws. [Note: On
November 9, econoff talked briefly with two local, U.S.-trained
lawyers who recently completed a report to BOPA on patent-linkage
systems used outside of Taiwan. While the two would not reveal the
report's conclusions, they hinted that the report does not recommend
that Taiwan adopt a patent-linkage system due to its complexity. End
note.]

11. (SBU) TIPO's Secretary General, Margaret Chen, recently told
econoff that her organization does not want to create an "Orange
Book" of pharmaceutical patents. She said that although TIPO would
assist in compiling such a patent book if directed by the EY, the
Office is not considering this move and does not think that Taiwan
needs a patent-linkage system. TIPO echoed BOPA's belief that the
Taiwan judicial system is adequate for protecting original-drug
manufacturers' IPR.

12. (SBU) Cheng-hua Lee, Vice President and CIO of Taiwan's Bureau
of National Health Insurance (BNHI), recently told econoff that
BNHI, too, does not see the need for a patent-linkage system in
Taiwan. He echoed Dr. Liao's belief that implementing patent linkage
would require too high a level of patent knowledge on the part of
the Taiwan authorities. He added that only one current patent
dispute case in Taiwan would have benefited from the protections of
a U.S.-style patent-linkage system, and that BNHI's actions to alert
hospitals and pharmacies of the resulting patent-dispute case is
adequate to protect the original manufacturer's property rights
pending a ruling from Taiwan's court system on the case.

Comment
-------

13. (SBU) BOPA, BNHI, and TIPO are the three offices in Taiwan
responsible for implementing pharmaceutical-related policy, and none
of the three supports the creation of a patent-linkage system as
advocated by foreign original-drug manufacturers. Therefore,
progress toward this reform would require sustained U.S. engagement
with Taiwan authorities. We may want to emphasize to the Taiwan
authorities that a patent-linkage system would help local companies
understand an original patent's status before starting an expensive
drug-development program; would ensure that Taiwan's regulatory
agencies have the right information to fairly evaluate patent use;
would save judicial resources of the new Intellectual Property Court
by minimizing lengthy and complex patent disputes; and would help
foster a stable and legally-friendly environment for international
drug manufacturers as they consider both where to introduce new
products and where to spend their drug-development dollars. End
comment.

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