Violation and Protection of Intellectual Property Rights in Public Procurement of Medicinal Products

 

August 20, 2024

BRACE ©

Bringing any invention to market is a long and financially costly process. Medicinal products are no exception, where 25–30 years may pass from molecule invention to market launch, with enormous funds expended. Therefore, developers and manufacturers of original medicinal products are granted patent protection: exclusive rights to manufacture and sell the product for a certain period. Upon expiration of this period, "copies" of original products containing the same active substance (hereinafter – "generics", "generic medicinal products") may be created.

However, in recent years, federal and regional Customers have begun actively procuring generics, including those introduced into circulation prior to the expiration of the patent for the original products. According to Pharmvestnik journal, the first case of a generic product entering a tender in Russia before the expiration of patent protection occurred in 2012. At that time, Laboratorio Tuteur participated in a tender with a product that was a generic of the antitumor drug "Gleevec". In 2016, the same company entered a tender with a generic of another antitumor drug, "Revlimid". Subsequently, Russian companies repeatedly carried out similar actions. Due to mass patent infringement, the Association of International Pharmaceutical Manufacturers has repeatedly appealed to FAS Russia. However, no significant changes have occurred in Russian legislation and law enforcement practice [1].

This article discusses which methods of protecting their Intellectual Property (IP) rights rights holders can use in public procurement and their effectiveness in practice.

What Do Exclusive Rights to Medicinal Products Include?

Before discussing the topic, let us touch upon general issues of regulating exclusive rights to inventions in Russian legislation.

Within the meaning of Article 1229 of the Civil Code of the Russian Federation, exclusive rights are rights to use the result of intellectual activity or a means of individualization at one's own discretion in any manner not contradicting the law. The law classifies inventions (technical solutions in any area related to a product or a method of production) as results of intellectual activity. It should be noted that a first-time obtained medicinal product may be based on several inventions: the active substance, the pharmaceutical composition, the method of obtaining the pharmaceutical substance and the finished dosage form, and the method of use.

Legal protection is granted to inventions on the basis of a patent. The term of exclusive rights to an invention in the Russian Federation is 20 years from the date of filing the application for the patent. For medicinal products, it may be extended by Rospatent for up to 5 more years if more than 5 years have elapsed from the date of filing the application for the patent to the date of obtaining the first marketing authorization for the medicinal product (Clause 2 of Article 1363 of the Civil Code of the Russian Federation).

Thus, if an invention forming the basis of a medicinal product is patented, other persons may not use the corresponding result of intellectual activity without the consent of the rights holder, including its introduction into circulation and offer for sale at tenders.

Mechanisms for Protecting Intellectual Rights to Medicinal Products in Procurement Legislation

In the Russian Federation, public procurement is regulated by special legislation:

• State procurement – Federal Law No. 44-FZ dated April 5, 2013 "On the Contract System in the Sphere of Procurement of Goods, Works, Services for Provision of State and Municipal Needs" (hereinafter – "The Contract System Law");
• Corporate procurement – Federal Law No. 223-FZ dated July 18, 2011 "On Procurement of Goods, Works, Services by Certain Types of Legal Entities" (hereinafter – "The Law on Procurement").

Let us consider the requirements imposed by public procurement legislation regarding exclusive rights to the subject (object) of procurement.

In accordance with Clause 8 of Part 1 of Article 31 of The Contract System Law, one of the requirements imposed on The Bidder is the possession of exclusive rights to results of intellectual activity if, in connection with the performance of the contract, The Customer acquires rights to such results. A direct reading of the rule implies that the requirement is imposed only if The Customer acquires rights to the results of intellectual activity. Regulators have repeatedly expressed this position [2]. Since in the procurement of medicinal products no rights to it as an invention are transferred, The Customer is not entitled to establish said requirement or reject bids, even if there is data on the violation of exclusive rights of other market participants. Let us illustrate this with practical examples.

The Antimonopoly Authority received a complaint from a Bidder regarding the actions of The Customer's commission during a Request for Quotations for the supply of an antitumor medicinal product with the INN "Osimertinib". In the applicant's opinion, the commission unreasonably admitted the winner's bid to participate in the procurement. In support of its argument, the complaint stated that the active substance "Osimertinib" is protected by a Eurasian patent issued until 2032 to Company A. This company is the holder of the Marketing Authorization for the medicinal product "Tagrisso", which is based on the invention protected by said patent. Meanwhile, a participant offering a generic medicinal product with the trade name "Osimertinib" was unlawfully admitted to the procurement, which violates the intellectual rights of the owner of the original product. The Antimonopoly Authority established that the generic "Osimertinib" proposed for supply was registered in the established manner and authorized for circulation. The Antimonopoly Authority also indicated that under Article 1406 of the Civil Code of the Russian Federation, the fact of infringement of patent holders' exclusive rights is established by a court decision, and deemed the complaint unfounded [3].

In another case, a rights holder attempted to challenge the procedure for forming the Initial Maximum Contract Price (IMCP) for the procurement of a medicinal product for HIV treatment with the INN "Dolutegravir". In support of the complaint, the applicant referred to the fact that The Customer used a price applicable to long-term contracts (1.5 years or more) to calculate the IMCP, while the procurement conditions provided for supply within only 6 months. In the applicant's opinion, these actions led to the participation of generic suppliers in the procurement and a significant price reduction of 20 million rubles (from 1.86 billion rubles to 1.84 billion rubles). FAS Russia stated that control over the formation of the IMCP is entrusted to financial control bodies and is not subject to assessment by the Antimonopoly Authority. Regarding the argument about patent rights infringement, the Antimonopoly Authority noted that disputes over patent rights infringement are considered in court. The complaint was deemed unfounded [4].

In the examples provided, rights holders attempted to take measures to quickly suppress the violation of their intellectual rights, as litigation is lengthy. However, as practice shows, appealing to the Antimonopoly Authority against the admission to state procurement of a person violating exclusive rights is not effective.

Regarding public procurement by state-owned companies, in accordance with Part 6 of Article 3 of The Law on Procurement, The Customer determines the requirements for Bidders in accordance with the procurement regulation approved by the governing bodies or the founder of The Customer. Therefore, to assess the prospect of an appeal, it is necessary to study The Customer's procurement regulation and the procurement documentation compiled on its basis. However, as practice shows, Customers are also not inclined to establish such requirements or reject bids due to the lack of exclusive rights [5].

By virtue of Article 449 of the Civil Code of the Russian Federation, the rights holder is also not deprived of the right to challenge conducted tenders in court. However, this requires proving a violation of the statutory rules for conducting tenders, which appears extremely problematic since the tender procedure is formally not violated. In addition, the rights holder may state a claim for recognition of the transaction as invalid. However, courts often demonstrate a formal approach: if the procurement procedure resulting in the contract and the protocol determining the winner are not challenged, the contract does not contradict the essence of legislative regulation and has no signs of a void transaction. Based on the foregoing, challenging tenders and the concluded contract is also an ineffective remedy from a practical point of view.

Thus, neither public procurement legislation nor civil legislation provides for any special mechanisms to protect exclusive rights during public procurement. In this regard, patent holders have to resort to general remedies for exclusive rights provided by civil and administrative legislation.

Civil Law Remedies for Intellectual Rights Infringement

In accordance with Article 1252 of the Civil Code of the Russian Federation, the protection of exclusive rights in relation to public procurement may be carried out by presenting the following claims:

• for suppression of actions violating the right or creating a threat of its violation;
• for seizure and destruction of goods;
• for compensation of damages;
• for recovery of compensation for infringement of exclusive rights.

This list is not exhaustive, but these claims are most frequently encountered in judicial practice. Below we will consider in detail the specifics of claims in the procurement of medicinal products and the effectiveness of each.

Suppression of Actions Violating Intellectual Rights to Medicinal Products

In accordance with Part 1 of Article 1229 of the Civil Code of the Russian Federation, the rights holder may, at its discretion, permit or prohibit other persons from using the result of intellectual activity. The absence of a prohibition is not considered consent (permission).

Taking into account the specifics of medicinal products circulation, rights holders usually formulate this requirement as "to prohibit the introduction of the medicinal product into circulation, participation in tenders for the supply of medicinal products". Often they are supplemented by a requirement for the seizure and destruction of medicinal products supplied as a result of conducted tenders. However, as practice shows, such claims are only partially satisfied by courts. Let us illustrate with an example from judicial practice.

In Case No. A40-30124/2015, foreign company P. filed a lawsuit in the arbitration court against Russian economic societies F., K., and M. to prohibit the introduction into civil circulation of a medicinal product under any trade name containing the substance "Voriconazole", participation in auctions for their supply, and for the seizure and destruction of all copies of the medicinal product TN "Biflurin" (INN "Voriconazole").

As established by the court, the plaintiff owns the exclusive right to the invention: the active substance "Voriconazole". Meanwhile, economic society F. manufactured the medicinal product "Biflurin", which uses the patented substance "Voriconazole". Societies K. and M. participated in tenders offering the medicinal product "Biflurin" and became the winners.

The court decided that the defendants were using the patented invention without the permission of the patent holder, which violates its exclusive rights to the invention. The claims to prohibit the introduction of the "Biflurin" product into civil circulation and to prohibit participation in tenders for the supply of this product were satisfied. regarding the seizure and destruction of the product already supplied under contracts, the court indicated that the judicial act must meet the principle of enforceability, i.e., contain an indication of the specific property subject to seizure and its location. Since the plaintiff did not submit information on the location of the medicinal product and its quantity, the court refused to satisfy this claim [6].

As we can see from the example, the discussed methods of protection have disadvantages:

1. Submitting information to the court on the location and quantity of the goods may become extremely difficult for the plaintiff. For example, if the consignee under a state contract states that the products were dispensed to patients or transferred for the provision of medical care, the requirement will not possess the attribute of enforceability.

Furthermore, as researchers of this issue point out, the seizure of products supplied under a state contract, especially those belonging to the group of vital and essential drugs, would contradict public interests, serving as another ground for refusing to satisfy the claims [7].

2. A judicial ban on participation in tenders does not give The Customer the right to reject a bid if the ban is nevertheless violated.

Thus, a ban on performing certain actions related to participation in public procurement is a possible, but practically insufficient, means of protecting exclusive rights.

Compensation of Damages for IP Rights Infringement in Public Procurement of Medicinal Products

In accordance with Part 2 of Article 15 of the Civil Code of the Russian Federation, damages are understood as actual damage (expenses that the person whose right has been violated has made or will have to make to restore the violated right) and lost profits (lost income that this person would have received under ordinary conditions of civil turnover if their right had not been violated).

Regarding the topic under consideration, as a rule, rights holders file claims for compensation of lost profits. Such a category of disputes is quite complex, since the person demanding compensation must prove the violation of their right, the presence of a causal link between the violation of the right and the incurred damages, as well as the amount of damages. In addition, in accordance with clarifications given by the Supreme Court of the Russian Federation [8], measures taken to obtain it and preparations made for this purpose are also taken into account when determining the amount of lost profits. Let us cite an example from judicial practice.

In Case No. A40-273203/2018, Joint-Stock Company R. filed a lawsuit against Company F. for the recovery of damages in the form of lost income in the amount of more than 12 million rubles. As established by the court, the Health Department conducted an auction for the supply of an antitumor medicinal product with the INN "Dasatinib". Based on the auction results, Company F. was recognized as the winner, and a state contract was concluded for the supply of the medicinal product "Dasatinib-Native".

The plaintiff indicated that Company B. had obtained a patent for the invention used in the production of the medicinal product "Sprycel" (INN "Dasatinib"). Based on an agreement with the rights holder company, the plaintiff received the exclusive right to sell this medicinal product. In turn, economic society F., participating in tenders with the generic "Dasatinib-Native", knew that it used an invention belonging to the rights holder. Thus, in the plaintiff's opinion, the medicinal product "Dasatinib-Native" could not be the subject of state contracts, and the actions of economic society F. caused it damages in the form of lost income in the amount of the contract price.

The court concluded that since the medicinal product "Dasatinib-Native" was registered in accordance with the law, was not restricted in circulation, and could be procured by Customers. The court indicated that the plaintiff participated in the auction but reduced the purchase price; its independent actions led to another participant being recognized as the auction winner. Thus, the plaintiff did not present evidence of a causal link between the defendant's actions and the damages. The court also referred to the absence of court decisions recognizing the right to the invention. The lawsuit was denied [9].

Note that we managed to find several successful cases [10] on the recovery of damages caused by infringement of exclusive rights to an invention in other areas of activity. However, in most cases, courts prefer to refuse to satisfy the claim due to unproven amount of damages or causal link between the actions of the rights violator and the incurred damages.

We agree with the opinion of researchers of this topic [11] regarding the presence of the following disadvantage of the discussed method of protection.

The rights holder must personally participate in the procurement or conclude an agreement with an authorized person on the transfer of rights to manufacture or sell the product solely to them. If this condition is not met, it will be difficult to prove the existence of a causal link between the offense and the rights holder's damages. Thus, the claim for damages compensation is a sufficiently effective method of protection, but the plaintiff must provide sufficient evidence of their occurrence.

Compensation for Infringement of Exclusive Rights to IP

In accordance with Article 1406.1 of the Civil Code of the Russian Federation, in case of infringement of the exclusive right to an invention, the rights holder is entitled, along with the use of other applicable methods of protection, to demand from the violator, at their choice, payment of compensation instead of damages:

• in the amount from 10,000 rubles to 5,000,000 rubles, determined at the discretion of the court based on the nature of the violation;
• in double the amount of the cost of the right to use the invention, determined based on the price that, under comparable circumstances, is usually charged for lawful use in the manner used by the violator.

The amount of compensation is determined by the court depending on the nature of the violation and other circumstances of the case, taking into account the requirements of reasonableness and fairness (Clause 3 of Article 1252 of the Civil Code of the Russian Federation). At the same time, as stated in the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 10 dated April 23, 2019, when determining the amount of compensation, the court takes into account circumstances related to the object of the violated rights, the nature of the committed violation, the period of illegal use, the presence and degree of the violator's guilt (including whether the violation was gross, whether it was committed repeatedly), the probable property losses of the rights holder, and whether the use of the results of intellectual activity was a significant part of the violator's economic activity [12].

Let us illustrate with an example from judicial practice.

In Case No. A40-123859/18, Company P. filed a lawsuit against Joint-Stock Company F. for the recovery of compensation for infringement of exclusive rights in the amount of 21.9 million rubles and lost profits in the amount of 1.8 million rubles, and against Societies K. and F. for the recovery of compensation for infringement of exclusive rights in the amount of 13.4 million rubles and lost profits in the amount of 329 thousand rubles jointly and severally.

As established by the court during the proceedings, Company P. owned the exclusive right to the invention of the active substance "Voriconazole", which was used by it in the production of the original medicinal product. During the patent validity period, Joint-Stock Company F. carried out actions to manufacture the medicinal product "Voriconazole-Canon" using the invention belonging to the plaintiff. Societies K. and M. were winners of competitions for the supply of this medicinal product under state orders. According to the list submitted by the plaintiff, Joint-Stock Company F. carried out supplies under 26 state contracts, Society K. under 13 contracts, and Society M. under 3 contracts.

The court decided that the infringement of the plaintiff's exclusive rights to the invention was expressed in the manufacture, offer for sale, and sale of the generic medicinal product. When determining the amount, the court took into account that violations regarding the disputed invention were ceased by the defendants and have not been repeated for more than 3 years. The court recovered compensation for the infringement of the exclusive right from the Joint-Stock Company in the amount of 22,500,000 rubles, and from Societies K. and M. in the amount of 500,000 rubles jointly and severally. Recovery of lost profits was refused due to the plaintiff missing the limitation period [13].

In another case, this company recovered compensation in the amount of 1.8 million rubles from the manufacturing company F. for the infringement of its rights to the same invention, expressed in the production of the generic "Biflurin" and its distribution through concluding state contracts [14].

Thus, despite the trend of courts reducing the amount of compensation for infringement of exclusive rights, this claim, in our view, is the most effective method of civil law protection in modern realities. Its obvious advantage is that the rights holder does not need to prove the fact of any damages.

Administrative Legal Protection of Exclusive Rights to IP

Administrative legal methods of protecting intellectual property, in particular appealing to the Federal Antimonopoly Service in connection with unfair competition, can also become an effective method.

Thus, according to Article 14.5 of Federal Law No. 135-FZ dated July 26, 2006 "On Protection of Competition" (hereinafter – "The Law on Protection of Competition"), unfair competition by an economic entity performing actions to sell, exchange, or otherwise introduce goods into circulation is not permitted if results of intellectual activity, except for means of individualization belonging to a competitor economic entity, were illegally used. At the same time, in accordance with FAS Russia clarifications, illegal use should be understood as use of an intellectual property object unauthorized by the owner, in cases where such authorization is necessary [15].

To qualify actions as violating the prohibition established by Article 14.5 of The Law on Protection of Competition, the rights holder will need to prove:

• the fact of using the result of intellectual activity in the medicinal product being the object of sale, exchange, or other introduction into civil circulation;
• the absence of the rights holder's consent to such use.

If a violation is identified in the actions, the Antimonopoly Authority has the right to issue a cease and desist order, as well as to oblige the violator to transfer the income received from such actions to the federal budget (Article 51 of The Law on Protection of Competition). In addition, there are risks of bringing the violator to administrative liability under Part 2 of Article 14.33 of the CAO RF "Unfair Competition". The fine for officials is 20,000 rubles or disqualification for up to 3 years; for legal entities – from 0.01 to 0.15 of the amount of the offender's revenue from the sale of goods, but not less than 100,000 rubles.

Let us cite an example from the practice of antimonopoly authorities. Company N., the manufacturer of the medicinal product for treating tumor blood diseases "Tasigna" (INN "Nilotinib"), appealed to FAS Russia with a complaint against the actions of Society M. regarding the introduction into civil circulation of the medicinal product "Nilotinib", which is based on an invention protected by the applicant's patent.

The Antimonopoly Authority established that Society M. introduced 6 batches of the product, for the introduction into circulation of which there was a judicial ban, and also concluded state contracts for supply with two regional Ministries of Health totaling more than 19 million rubles. The FAS Department decided that Society M. introduced the medicinal product "Nilotinib" into civil circulation, knowing for certain that such actions violated the exclusive rights of the manufacturing company N. Said actions are capable of causing damages to the applicant due to a decrease in sales of the medicinal product "Tasigna". The court recognized the actions of Society M. as violating Article 14.5 of The Law on Protection of Competition, issued a cease and desist order and an order to transfer income in the amount of more than 19 million rubles to the federal budget [16]. An attempt to challenge the Antimonopoly Authority's decision in court was unsuccessful [17].

In another case, the manufacturer of the medicinal product "Mukosat" for treating degenerative-dystrophic diseases of the spine and joints appealed to the Antimonopoly Authority with a complaint against the actions of Society T., which manufactured the generic "Drapstop", regarding infringement of its exclusive rights. The FAS Department recognized the arguments as valid and fined Society M. 23.8 million rubles based on the amount of revenue from the sale of "Drapstop" [18]. Note that the court reduced the fine amount to 100,000 rubles [19].

Currently, according to Pharmvestnik journal [20], FAS Russia is considering a complaint from rights holder Company A. against the manufacturer of a generic of the original product for treating diabetes mellitus "Forxiga". The original product is protected by a patent until 2028. The Supreme Court of the Russian Federation confirmed the legality of Company A.'s patent rights, yet 22 batches of the generic "Fordiglif" were released to the market. FAS Russia initiated a case on signs of unfair competition. In addition, 4 more cases of similar content are under consideration by the service. However, at the time of writing this article, the outcome of the case is unknown to us.

Disadvantages of this method include the fact that it does not effectively compensate the rights holder for damages. However, in combination with civil law methods of protection, it can effectively influence the speedy cessation of violations.

Summing up, we make the following conclusions. Russian public procurement legislation currently contains no mechanisms for protecting rights holders' rights. At the same time, the issue of protecting exclusive rights should not be a subject of consideration by Customers when carrying out procurement. Instead, legislation on the circulation of medicinal products needs to provide a mechanism preventing the release of generic products into circulation before the expiration of the patent for the original product.

As practice has shown, the most effective constitute claims for compensation for infringement of exclusive rights. However, to achieve maximum effectiveness, it is desirable to combine several methods of protection. Furthermore, given the course actually taken by the state to support generic products, to avoid formal approaches by courts, it is advisable to obtain a judicial decision recognizing the exclusive right to the invention.

_______________________

References

[1] Regions began purchasing generics of original drugs protected by patent. 06.12.2017. E. Kalinovskaya. Pharmvestnik journal website.

[2] Letter of the Ministry of Economic Development of Russia dated 04.10.2016 No. OG-D28-11932, Letter of the Ministry of Finance of Russia dated 20.04.2020 No. 24-02-06/31676.

[3] Resolution of the Primorsky FAS Russia dated 12.07.2024 No. 025/06/50-687/2024.

[4] Resolution of FAS Russia dated 02.07.2024 in case No. 28/06/105-1631/2024.

[5] Resolution of the Arbitration Court of the Ural District dated 18.03.2022 No. F09-10706/21. [6] Resolution of the Intellectual Property Court dated 14.09.2016 No. S01-762/2015 in case No. A40-30124/2015.

[7] Orlova A. Problems of protecting exclusive rights to pharmaceutical inventions during state procurement of medicinal products // Legal protection of intellectual property: collection of materials of the VII International IP Forum. 2019.

[8] Clause 2 of the Resolution of the Plenum of the Supreme Court of the Russian Federation dated 24.03.2016 No. 7 "On the application by courts of certain provisions of the Civil Code of the Russian Federation on liability for breach of obligations".

[9] Resolution of the Ninth Arbitration Appeal Court dated 02.08.2019 No. 09AP-41751/2019 in case No. A40-273203/2018.

[10] Resolution of the Intellectual Property Court dated 14.09.2022 No. S01-1514/2022 in case No. A65-16903/2021, Resolution of the Intellectual Property Court dated 15.07.2016 No. S01-552/2016 in case No. A04-4967/2015.

[11] D. Borodin Problems of protecting patent rights of pharmaceutical manufacturers during state procurement of medicinal products // Journal of the Intellectual Property Court, 2017, No. 1.

[12] Resolution of the Plenum of the Supreme Court of the Russian Federation dated 23.04.2019 No. 10 "On the application of Part Four of the Civil Code of the Russian Federation".

[13] Resolution of the Ninth Arbitration Appeal Court dated 31.05.2019 No. 09AP-14988/2019-GK in case No. A40-123859/18.

[14] Ruling of the Supreme Court of the Russian Federation dated 28.05.2021 No. 305-ES21-8238 in case No. A40-123813/2018.

[15] Letter of FAS Russia dated 24.12.2015 No. IA/74666/15 "On the application of the 'fourth antimonopoly package'".

[16] Resolution of FAS Russia dated 22.07.2021 in case No. 08/01/14.5-12/2021. [17] Resolution of the Intellectual Property Court dated 28.09.2022 No. S01-1616/2022 in case No. A40-200302/2021.

[18] Resolution of the Moscow FAS dated 30.12.2020 No. DS/27872/20 in case No. U 050/01/14.5-864/2020.

[19] Resolution of the Intellectual Property Court dated 07.09.2021 No. S01-1389/2021.

[20] FAS initiated a case against "Akrikhin" due to the analogue of "Forxiga". 23.07.2024. E. Rakitina. Pharmvestnik journal website.