April 2005

Product Liability Update

The Bolar clause:

Bringing the European generic pharmaceuticals industry into line with the US?
On 11 March 2004, having been granted approval by the European Parliament, the EU Council of Ministers adopted a new pharmaceutical regulatory package (EU Package).
The EU Package comprises one regulation (No. 726/2004, laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency, which replaces Regulation 2309/93) and three Directives, including 2004/27/EC, which amends Directive 2001/83/EC on the Community code relating to medicinal products for human use, and contains the experimental-use exemption, or "Bolar clause". One of the objectives of the EU Package was to put the European pharmaceutical industry (and, in particular, the generics sector) onto a more equal footing with the US which has a strong market in generic pharmaceuticals. enables speedy approval by the FDA. A short time before the expiry of the patent, Bolar obtained some of the active ingredient from a foreign manufacturer and began the bioequivalency studies necessary for compiling the ANDA. Roche responded by filing a suit for patent infringement. The District Court of the Eastern District of New York found that no infringement had taken place owing to the "experimental" nature of Bolar's works. The Court of Appeal for the Federal Circuit, however, disagreed with Bolar's argument that its work was covered by the common law experimental-use exemption and ruled that the exemption was to be narrowly construed and should not apply to experiments which have a commercial objective. Accordingly, experiments conducted for use in an ANDA could not take place prior to the expiry of a patent. In 1984, in response to the Roche -v- Bolar judgment, and in an attempt to promote competition by simplifying authorisation for generics while maintaining appropriate protection for the interests of research-based pharmaceutical manufacturers, the US Congress passed the Drug Price Competition and Patent Term Act (known as the Hatch-Waxman Act). This created a statutory experimentaluse exemption (originally enacted and codified in 35 U.S.C. 271.(e)(1)). The experimental-use exemption states: "It shall not be an act of infringement to make, use, offer to sell, or sell a patented invention solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs ".

The generics market in the US

In the US, the door was opened to the generics market some 20 years ago by the landmark litigation between Roche Products Inc. and Bolar Pharmaceuticals Corp. Inc. (Roche -v- Bolar), which prompted a change in US law. Prior to 1984, experimenting with a drug before the expiry of the patent with the purpose of obtaining marketing authorisation from the US Food and Drug Administration (FDA) for a generic version of the patented product was an infringement of the patent. So before Roche -v- Bolar, there was a significant delay to market entry for generic pharmaceuticals in the US. Roche -v- Bolar came to trial in 1984. Roche was the owner of the patent for flurazepam-HCI, a benzodiazepine derivative and the main active ingredient of the sleeping pill "Dalmane". Bolar intended to submit an Abbreviated New Drug Application (ANDA) to the FDA for a similar drug containing the same active ingredient upon the expiry of Roche's patent. An ANDA requires a generic producer simply to show that they have a bioequivalent product and

An equivalent exemption for Europe?

In 1996, the European Parliament proposed to introduce an equivalent exemption into European law. This proposal was unsuccessful because, collectively, the member states considered it unlikely that such an exemption would comply with Article 30 of the World Trade Organisation's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement) which states that:

Bruxelles Frankfurt London Madrid Milano Mnchen New Delhi New York Paris Singapore Tokyo

"Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties". Accordingly, until recently, the extent to which experimental use of patented products was permitted in Europe was governed by national patent laws. The experimental-use exemption in Europe has its roots in Article 31(b) of the Community Patent Convention of 1975, which was transposed into Article 27(b) of the Community Patent Convention as adopted by the Agreement Relating to Community Patent of 1989. In the UK, section 60(5)(b) of the Patent Act 1977 follows the wording from the Community Patent Convention and provides an exemption for "experimental purposes relating to the subject matter of the invention". In 1985, the judgment in Monsanto -v- Stauffer indicated that this experimental-use exemption would not protect trials which had the sole objective of obtaining market authorisation against claims of patent infringement. However, in Clinical Trials I (1995), Clinical Trials II (1997) and Wellcome -v- Parexel International and Flamel Technology (2001), the German and French courts and tribunals subsequently handed down judgments that appear to conflict with the decision in Monsanto -v- Stauffer. Despite the common approach generally taken by all member states, this led to considerable legal uncertainty as to the European position with regard to the experimental-use exemption. Owing to this uncertainty, prior to the accession of the 10 new member states on 1 May 2004, the development and production of generic pharmaceuticals before the expiry of a patent tended to take place outside the EU, often in the countries that became the accession states. The Czech Republic, Hungary, Poland and Slovenia were, for example, some of the principal generics-producing countries and it had been estimated that up to 14,000 jobs would have been lost in these countries if the uncertainty with regard to the experimental-use exemption resulted in their transferring pre-patent expiry development work and firstwave manufacturing to countries outside the expanded EU, post-accession.

interests of the research-based pharmaceutical industry with those of the generics manufacturers. In his opening speech at the European Parliament Plenary Session on 16 December 2003, Mr Erkki Liikanen, the Member of the European Commission responsible for Enterprise and Information Society, stated that an objective of the review was to: "increase the availability of innovative medicinal products while at the same time encouraging competition with generic products". At the end of the review process, the Commission concluded that generics manufacturers should be permitted to conduct trials required for marketing authorisation during the patent term of the original product.

The Bolar clause

This conclusion was transposed in the Bolar clause (set out in revised Article 10(6) of Directive 2004/27/EC in the EU Package), which provides that: "conducting the necessary studies and trials and the consequential practical requirements shall not be regarded as contrary to patent rights or to supplementary protection certificates for medicinal products". The member states had 18 months from 30 April 2004 to implement the Directives into their national law. The rest of the EU Package came into force on 20 May 2004. It was hoped that the Bolar clause would put the EU generics industry on a par with the US and that it would stop the migration of the generics industry to non member states. However, it is already clear that there is disparity between the European Bolar clause and the US model, insofar as the European clause is expressly limited to the conduct of "studies and trials" and "consequential practical requirements". It is not specified, and so remains unclear, whether other actions, such as the supply or export of materials, are covered by the Bolar clause. "Consequential practical requirements" is a particularly nebulous term and will inevitably lead to disputes as to its meaning. Having adopted such ambiguous wording, it seems that the Commission is leaving it to the national courts to interpret the scope of the exemption. If it is to be construed narrowly, all acts that fall outside its ambit will continue to be assessed under national patent laws, where there is potential for inconsistency between individual member

Review of Europe's pharmaceutical regime

During its review of the pharmaceutical regime, the European Commission therefore focused on balancing the

states (which may result in irregular competition within the EU). Nevertheless, having regard to manufacturers and suppliers of generic pharmaceuticals, the introduction of the Bolar clause in the EU is undoubtedly a positive step. But it is unlikely to be trouble free. The use of ambiguous

terminology will inevitably result in protracted and costly disputes over the exemption's scope, and implementation of the Bolar clause into national law is likely to be complicated by a diverging application from member state to member state (as national legislators variously interpret the objective of bringing the rights of European generics manufacturers into line with the US).

Contacts
London
Mark Elvy +44 (0)20 7859 1567 mark.elvy@ashurst.com John Evans +44 (0)20 7859 1545 john.evans@ashurst.com Arundel McDougall +44 (0)20 7859 1095 arundel.mcdougall@ashurst.com

Milan
Eva Maschietto +39 02 85 42 31 eva.maschietto@ashurst.com

Munich
Karl Wach +49 (0)89 244 421 100 karl.wach@ashurst.com

Paris
Jean-Pierre Farges +33 (0)1 53 53 53 53 jean-pierre.farges@ashurst.com

Brussels
Denis Waelbroeck +32 (0)2 626 1900 denis.waelbroeck@ashurst.com

Madrid
Jess Almoguera +34 91 364 9800 jesus.almoguera@ashurst.com

Bruxelles Avenue Louise 489 1050 Bruxelles Belgium Tel +32 (0)2 626 1900 Fax +32 (0)2 626 1901 Frankfurt Oberlindau 54-56 60323 Frankfurt am Main Germany Tel +49 (0)69 97 11 26 Fax +49 (0)69 97 20 52 20 London Broadwalk House 5 Appold Street London EC2A 2HA, UK Tel +44 (0)20 7638 1111 Fax +44 (0)20 7638 1112 Madrid Alcal, 44 28014 Madrid Spain Tel +34 91 364 9800 Fax +34 91 364 9801/02 Milano Via Sant'Orsola, 3 20123 Milano Italy Tel +39 02 85 42 31 Fax +39 02 85 42 34 44 Mnchen Prinzregentenstrae 18 80538 Mnchen Germany Tel +49 (0)89 244 421 100 Fax +49 (0)89 244 421 101

New Delhi Liaison Office 6 Aurangzeb Road, D-1 New Delhi 110011 India Tel +91 11 2301 4054 Fax +91 11 2301 4089 New York 712 Fifth Avenue New York, NY 10019 USA Tel +1 212 245 4540 Fax +1 212 245 4335 Paris 22, rue de Marignan 75008 Paris France Tel +33 (0)1 53 53 53 53 Fax +33 (0)1 53 53 53 54 Singapore 6 Battery Road #15-08 Singapore 049909 Tel +65 6221 2214 Fax +65 6221 5484 Tokyo Shiroyama JT Trust Tower, 30th Floor 4-3-1 Toranomon, Minato-Ku Tokyo 105-6030, Japan Tel +81 3 5405 6200 Fax +81 3 5405 6222

This update is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information please contact us at Broadwalk House 5 Appold Street London EC2A 2HA Tel +44 (0)20 7638 1111 Fax +44 (0)20 7638 1112 www.ashurst.com 2005 Ashurst Ref:DTP/4026 Apr 05