Acting Under Secretary of Commerce for IP and Acting USPTO Director Teresa Stanek Rea
Speech to China Pharmaceutical University
September 2, 2013
Companion slides referenced in this speech are available in this pdf document.
Good afternoon and thank you for your kind introduction. It is a great pleasure to be with you here at the China Pharmaceutical University. [SLIDE 1 - Opening Slide] I particularly want to thank the China Pharmaceutical Industry Research and Development Association and the JS IPO for their assistance and hospitality and for providing me with this opportunity to address you today. It is a particular pleasure for me to be speaking about intellectual property and innovation in the pharmaceutical sector at the China Pharmaceutical University, because I am both a pharmacist and an intellectual property lawyer.
I am especially pleased that there are not only lawyers and officials and business people here, but also students from the China Pharmaceutical University. The young people of China have exciting challenges and opportunities ahead of them as they help your country become an innovative economy, especially in the pharmaceutical sector.
Based on my experience, I believe that the pharmaceutical sector is one of the most dynamic sectors in the world economy today. It not only drives economic growth and provides exciting employment opportunities to some of our best and brightest researchers, but it also develops products that may save or extend our lives, improve our quality of living, and reduce health care costs. China's commitment to innovation in the life sciences has the potential to help address difficult public health issues the world faces. Innovation is critical to China's efforts to grow from a country where goods are made to one where goods are researched and designed and branded.
I should also add that I am especially grateful to visit Nanjing, which to a degree can claim credit for China's patent system. It was a long time ago-back in in 1859 during the Taiping Rebellion-that Hong Rengan tried to legislate a system of rewards for invention. That system may have been a precursor to a modern patent system. Today, of course, China's need for a modern patent system is even greater. This is not only because China has advanced economically and is committed to innovation, but also because technology has advanced.
China's leadership has recognized the importance of the biopharmaceutical industry, and has designated the biotechnology sector as one of the seven "Strategic Emerging Industries." The 12th Five Year Biotechnology Development Plan, promulgated by the Ministry of Science and Technology in November 2011, sets forth ambitious goals for the industry. According to the plan, China will improve its biotechnology-related R&D output such that it will become third in the world for the number of scientific citations, biotechnology patent applications, and biotechnology patent grants. Under the plan, China would also become first in the world for the number of biotechnology scientists-the goal is for there to be 300,000 such scientists-and would achieve at least a 15 percent annual growth rate for the sector.
As the Five Year Biotechnology Development Plan states, increasing public awareness of intellectual property rights (IPR) and improving the legal and procedural rules governing the acquisition, protection, and enforcement of those rights is critical for creating the incentives necessary to improve the biotechnology field in China. China's growing capabilities in the pharmaceutical sector, illustrated by the increasing numbers of patent applications to China's State Intellectual Property Office, or SIPO, appears to be matched by increasing applications for new drugs to China's State Food and Drug Administration, or SFDA, including from increasingly capable Chinese innovative biopharmaceutical firms.
According to a study in Nature Reviews, as of 2010 there were 187 investigational drugs in clinical trials in China. Of these 187 products, 70 had compound patent protection in China, 23 had compound patent protection in the United States, and 16 had protection in Europe. I am sure that many, if not most, of those products were developed by innovative member companies of our sponsor today, SinoPHRDA, and I want to congratulate your members on this pioneering work.
The patenting of biopharmaceutical inventions by innovative Chinese firms occurs not only in China, but elsewhere as well. If you look at one revealing snap-shot, you can see that between 2002 and 2013, the relative growth in patent filings from China has vastly outstripped that of Japan, Europe and even the United States and Korea. [SLIDE 2 - Pharmaceutical Patents Granted] Although the total numbers in Europe, Japan, and especially the United States are much greater, we can see that over that period of time, the numbers of pharmaceutical patents granted by the USPTO from the U.S. and Japan were relatively stable, and Europe's numbers decreased. South Korea showed impressive growth of over 160 percent, but filings from China grew by nearly ten-fold.
What I like about this slide is that it shows both what China has accomplished in the last 10 years, but also, how much farther there is to go. This trend is the result of several factors, including increasing investment in research and development from various sources, such as the Chinese government, private and state-owned domestic Chinese companies and foreign firms. I think it is worth pointing out that foreign investment in the biopharmaceutical sector in China is an important component of this trend. I would note that foreign investment in the biopharmaceutical sector is likewise an important factor in the United States.
According to recent estimates, foreign investment in China's biopharmaceutical sector has been rising at more than 13 percent per year over the last two years. Investment from the members of the R&D-based Pharmaceutical Association Committee of the China Association of Enterprises with Foreign Investment, totaled 20 billion renminbi, a third of which has been invested in R&D centers in China. There are now as many as 30 foreign invested R&D facilities in China, so this is indeed an exciting time for China's biopharmaceutical industries, both foreign-owned and domestic.
While there are differences between our countries, including our stage of economic development and the human and financial resources we have at our disposal, the gap is narrowing and the prospects for cooperation are growing. The desire to develop an innovative pharmaceutical sector is particularly acute for Jiangsu, which has committed to become a leading province in biotechnology and pharmaceuticals.
During the past few years, USPTO officials have been pleased to visit Taizhou, "China's Medical City," on several occasions, and we have been pleased to host discussions and to participate in seminars on a wide range of IP topics, including conferences on biotechnology. In addition to attending meetings in Nanjing and Taizhou, we have also met with officials and business leaders throughout your beautiful province, and we've visited other cities in Jiangsu, such Suzhou, where we visited the satellite patent offices of SIPO. From our perspective, the challenges that biotechnology innovators in Jiangsu face are fundamentally no different than the challenges that innovators confront in other countries. These challenges arise in a range of areas, from intellectual property, to human resources, to taxation and regulations. Challenges can likewise arise in connection with collaboration that companies may undertake with one another both within their countries and cross border.
Let me now turn to the patent system, which is a focus of our discussions today, functions by providing a right to exclude others from making, using or selling a patented invention for a 20-year period for an invention that is new, useful and non-obvious, and which the inventor or his assignee has agreed to disclose to the public and make available to the public after the 20-year term has expired. This basic concept was set forth in the Constitution of the United States, which provided that our Congress would establish such a system to "promote the progress of science and the useful arts." The same basic concept today applies throughout the world: we need to encourage innovation by disclosure of inventions to enable the public to benefit from these discoveries while providing the inventor with a right to protect his inventions.
From my own experience, having represented both generic companies and innovative companies, I can say that the costs, risks, and challenges facing innovative companies developing new products dwarf those of generic companies making copies of the innovator's products. We know today that it can cost over $1 billion and take as long as 10 to 15 years to go from a candidate compound to a newly approved pharmaceutical product. [SLIDE 3: Drug Discovery and Commercialization Timeline] These are enormous investments, and they require a sound innovation ecosystem to support it.
The IP system is an important part of that ecosystem. It balances the rights of the innovators, the public, the regulators and, other stakeholders. These policies support pharmaceutical innovation, and are the principal subject of my talk today.
Introduction -The Importance of Property Rights in Innovation
Jiangsu is privileged to have a governor who understands the importance of innovation. As we all know, Governor Li was formerly a Vice Minister of the Ministry of Science and Technology. We have been honored to host him at the USPTO, and to have entered into a memorandum of understanding with Jiangsu province to promote IP protection. In July of this year, I also had the privilege of participating in our bilateral Innovation Dialogue with Minister of Science and Technology Wan Gang, and we had an opportunity to talk about IP and innovation.
Bayh-Dole Act - Commercialization of Government Funded R&D
At that meeting, we talked about several of the critical challenges that are present in the pharmaceutical sector, including how to commercialize government-funded R&D. This is one of the first "balancing" acts that I would like to talk about: determining who should own the IP that results from government-funded research and development in the biotechnology sector. This topic is especially critical to an institution like China Pharmaceutical University, which may wish to commercialize the innovations that it develops with government financing.
We know CPU is active in developing intellectual property rights because the web-site for your technology transfer office lists 507 patents for technology transfer that CPU owns. [SLIDE 4 - CPU Patent Information] We also know that the CPU has been active in filing for patents internationally. According to our records, your university has applied for 11 patents with the USPTO, five of which have already been granted. But the topic also has important consequences for the Chinese people, who can realize the benefits from that investment in research if it is commercialized.
We know from the U.S. experience that our own biotech companies have been significant beneficiaries of what we call the "Bayh-Dole Act." This act gave researchers ownership of their inventions. A result of this has been that more products have been commercialized, and the public has benefited from these products. China has studied our Bayh-Dole Act and in fact included provisions in its Science Promotion Law that provide similar rights to inventors for government funded inventions.
Here's a picture, in fact, of Senator Bayh, who co-authored the Bayh Dole Act, celebrating his 80th birthday at SIPO. We were very glad to support that visit. [SLIDE 5 - Picture of Senator Birch Bayh]
Bayh-Dole has been especially important to life sciences research and development in the United States, because of the heavy involvement and investment of the government in supporting research that addresses public health issues. I expect that China's experience has been similar. In China, in 2009 and 2010, over 14,000 patent applications for drugs were filed. [SLIDE 6 - Medicine Patent Filings in China] Of those 14,368 patents, 5,623 were for traditional Chinese medicine, or TCM, and 7,662 were for Chemical and Biological Medicines. It may be interesting for you to note that over 9 percent of these applications came from Jiangsu Province, second only to Tianjin, with around 16.5 percent.
It is also interesting to note that, as of 2010, seven of the top 10 assignees of Chinese pharmaceutical patents are Chinese academic institutions, including the China Pharmaceutical University. This illustrates the important role for, and benefits to, academic institutions and universities in pharmaceutical R&D.
When I met with Minister Wan Gang earlier this year, we also talked about the importance of finding appropriate ways to reward employee-inventors, through their employment contracts. This will obviously be an important issue to those of you who will be conducting R&D in the pharmaceutical sector: you will want to ensure that you are properly rewarded for your inventions and that companies are willing to take the risks of investing in you and in new product development.
The U.S. experience has been that the best way of rewarding inventors is by having clear contracts negotiated in advance that specify ownership of the rights and the rewards for the inventions. Our experience has also been that governments should minimize their interference and supervision of these arrangements. In fact, the lesson of both Bayh-Dole and employee compensation in the United States is that clearly defined ownership rights in intellectual property help stimulate innovation by enabling entrepreneurs to invest in commercializing their discoveries.
Intellectual Property Protection in Biotechnology: Shared Experiences of the United States and China
We have been pleased to see how China has studied many of our pioneering practices in intellectual property and adopted them to its needs. I would like to talk to you now about some other areas where China and the United States have exchanged views about promoting innovation in the biotechnology sector through intellectual property.
Hatch-Waxman Regime: Patent Term Restoration, Bolar Exemption, Data Exclusivity and Patent Linkage
In the United States, we implemented a suite of policies and legislation during the genetic revolution of the late 1970s and early 1980s that helped make the United States the world leader in pharmaceutical innovation. Specifically, I'm referring to the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, and related legal and policy developments. In many ways, this legislation was a reform of our marketing approval regulatory system for pharmaceutical products, but with important IPR considerations.
At the time, there were a number of competing policy imperatives with which our Congress was grappling. First, it was extremely difficult for generics to come to market under the pre-Hatch-Waxman system because generic drug manufacturers effectively needed to reproduce clinical trial data showing that their products were safe and effective. In other words, a completely new drug application might be needed, regardless of whether the generic firm could demonstrate "bioequivalence" between its product and a previously approved drug.
Human trials is one of the most costly and lengthy phases of the drug commercialization process, and even though the generics would have had the advantage of a good deal of certainty that the products they were testing would be approved (certainty that the originator did not have), the cost was still prohibitive for many firms and did not result in the reduced prices that consumers were seeking. On the other hand, innovators were faced with a variety of prospects that did, or could, reduce the effective life of their IPR, which reduced the incentive to invest in the costly and risky R&D necessary to commercialize new products.
Among the problems that innovators faced was that the delays incurred in conducting clinical trials and obtaining approvals for a new drug application often meant that by the time a pharmaceutical product was approved for distribution by our Food and Drug Administration, there was relatively little time left on the term of the patent. Just to be sure we understand the concepts at work here: a patent must be granted on the basis that an invention is new, useful and non-obvious. Once a clinical trial is conducted, the invention may no longer be "new", as it will be known to a segment of the public. Moreover, the function of the patent office is not to assure the public that an invention is safe and effective; that role belongs to the regulatory authorities.
Finally, if a pharmaceutical company delays in filing its patent application until a full dossier of clinical data is available, it may find that it is no longer granted patent rights because it was not the first to file. To add to the complications of this issue, generic companies did not want to wait to develop their products until the patents had expired. They wanted to begin the process of developing lower-cost generic products by conducting abbreviated testing on the safety and efficacy of their products by showing they were "bioequivalent" to the innovator's products, prior to the expiration of the innovator's patent term. They would then introduce their generic product upon the expiration of the patent term.
We struck a balance. We compensated patent holders for the effective erosion of the patent term that they suffered while they were conducting the time consuming clinical trials that are needed for marketing approval. In addition, we also addressed the need that generic manufacturers have to conduct research necessary for obtaining marketing approval while the innovators' patents are still in force. In particular, our Congress created an "abbreviated pathway" to marketing approval for generic products, and limited the liability of a generic manufacturer from charges of patent infringement for conduct, such as performing bioequivalence studies, necessary to prepare the generic products for marketing approval. This "Bolar exemption" for patent infringement is critical to avoid costly delays between the expiration of a patent and the introduction of generic competition. China has adopted a Bolar exemption that permits testing for bioequivalence of generic products seeking SFDA approval.
At the same time-to ensure that the patent and regulatory systems created the necessary incentives to pursue commercial drug development-the United States restored, with limits, patent term that is lost due to the time it takes to complete the regulatory process, including conducting clinical trials, a process that can take as long as 10-15 years from the identification of a candidate compound. This is often referred to as patent term restoration or patent term extension, and it is a recognition that patent applications are often filed on candidate compounds years before the lengthy, costly, and risky clinical trials are completed, and before regulatory approval is granted by the Food and Drug Administration. The consequence was that generics were able to market their product earlier in the United States through Bolar provisions, while innovators were able to extend the life of patents whose terms had been compromised due to regulatory approvals.
We have heard in recent years that many Chinese IP officials recognize that most pharmaceutical innovators cannot enjoy the 20-year patent term due to delays from regulatory approvals and clinical trials, and that some think a patent term restoration mechanism would make sense. We strongly support such an effort. Also, as part of Hatch-Waxman, a period of exclusivity was granted to the originator for its proprietary clinical trial and related data. This prevents generic manufacturers from relying on the innovator's costly clinical trial results for a limited period of time. This is often referred to as data protection or data exclusivity, a form of IP protection included in the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property Rights, or the WTO TRIPS Agreement.
It is important to note that data exclusivity is separate and independent from whether there are valid patents that also cover the particular product. The patent protects against infringement of the invention; data exclusivity protects against unfair use of another party's proprietary data. In the United States, data exclusivity applies regardless of where the innovator's product is first launched. It is our understanding that China's data protection regime only provides protection to products that are first launched in China. We believe that China should offer the same type of data protection as do other trading partners, without regard to where the product was first launched.
Therefore, we were pleased that last year China committed to establish effective data protection in a manner consistent with international research and development practices at the U.S.-China Joint Commission on Commerce and Trade and we look forward to working with China as it implements this commitment.
Finally, to avoid the unnecessary and costly litigation-and the harm to the innovator-that can result if marketing approval is granted prematurely to a generic-the U.S. Congress established a patent linkage system to prevent the regulator from approving a product that would infringe a valid patent. This system in the United States does not impose on our Food and Drug Administration any obligations to determine the validity of patents.
Instead, the system works by requiring the originator to list all relevant patents and their expiration dates, which in the United States are compiled in the so-called "Orange Book," with which many pharmaceutical companies throughout the world are familiar. Today the Orange Book is available on line, for free. This is what it looks in hard copy. [SLIDE 7 - Image of the USFDA's Orange Book] When a generic manufacturer wishes to seek marketing approval based on the findings of safety and efficacy demonstrated by the originator's clinical trial and other data, that manufacturer is obligated to check the Orange Book and determine whether there are any listed patents covering the product.
Here is an example of a listing from the Orange Book. You can see that this one application list some 20 patents, including the expiration dates of each. In addition, the listing describes when certain periods of market exclusivity expire. [SLIDE 8 - Orange Book Example]
A generic manufacturer that wishes to market its product must certify to the U.S. FDA that the compound or formula for which it is seeking marketing approval either does not have any listed patents, that the generic manufacturer does not intend to market the product until after the expiration of any listed patents, or that the product will not infringe the relevant patents or the patents are invalid or unenforceable. This last option, the so-called "paragraph IV" certification, requires the generic applicant to inform the originator, and the originator can choose to contest this certification by bringing a civil infringement suit.
China has experimented with a patent linkage system. In this system, we understand that there is some level of notification to the innovator that a generic applicant has filed for marketing approval, which allows the innovator to seek remedies in court prior to the approval and marketing of the competing product. However, it is not clear whether innovators can file infringement suits prior to the marketing of the generic products, and whether they can seek an injunction from a court to either prevent the generic manufacturer from marketing the products, or to prevent SFDA from granting the marketing approval in the first place. The lack of clarity in the legal and regulatory system can impair the effectiveness of such a system, resulting in harm to both innovators-who are facing generic competition prior to the expiration of their valid patents-and to generic firms that are facing lengthy and costly patent infringement litigation.
Remember what I said about Bayh-Dole and service inventions: In order for individuals to invest, they need clarity about what they own and what their risks are. The patent linkage system in the United States increases the clarity for all parties concerned. First, the system allows generic manufacturers to be well aware of any possible patents covering the products for which they wish to seek marketing approval. Armed with this information, a generic manufacturer can devote resources to other products, choose to wait until the relevant patents have expired, or even challenge the validity of the relevant patents if they so choose.
In any case, the U.S. system is highly transparent and enables both innovators and generics to determine how long their rights are protectable and when they expire, for the benefit of competition in the U.S. market. We believe that a robust patent linkage system also helps to protect the hard work of China's innovative pharmaceutical industry, because the same transparency that benefits the generic firms would benefit the innovators, notifying them of pending applications and allowing them to take appropriate legal action before there is potential infringement from generic competition that can severely undercut the return on their significant investments.
The current system in the United States provides enormous benefits to consumers, with generics accounting for 75 percent of all prescribed drugs, saving consumers and society more than $1 trillion over the last 10 years. And because of the effective IPR protections provided by both the patent system and the regulatory system, U.S. innovators have continued investing enormous resources into innovative pharmaceutical products-nearly $150 billion in 2012, and about half of this investment was outside of the United States.
Article 26.3 - IPR-Related Challenge for an Innovative Biopharmaceutical Sector in China
Now, I would like to discuss one issue in particular that has come to my attention. In the United States, we recognize that standards for demonstrating the inventiveness, novelty, and utility of a biopharmaceutical compound are quite different from the standards for demonstrating the safety and effectiveness, or efficacy, of such products in human beings. In other words, as I mentioned, there are significant differences between the standards of patentability and the standards of marketing approval for therapeutic drugs.
Pharmaceutical companies typically file patents on new therapeutic compounds before they have conducted clinical trials necessary to obtain marketing approval. In addition, patent offices need to accept applications for patents when there is sufficient data to demonstrate that the patent is enabled, even if such data is not sufficient to demonstrate that the invention is in fact safe and effective for human use. It is particularly important to define both the type of data that patent offices require in order to grant patents, thereby providing a critical incentive for innovation, and that regulatory agencies require for granting marketing approval, thereby ensuring that the products are safe and effective for human use.
With respect to the patent system, the relevant language is found in China's patent law, Article 26.3, which has not been amended for over 20 years. It provides that the written description in a patent application "shall contain a clear and comprehensive description of the invention or utility model so that a technician in the field of the relevant technology can carry it out." [Slide 9 - Article 26(3) of China's Patent Law] This is referred to as the "sufficiency of disclosure" or enablement requirement, and is intended to ensure that, in exchange for the exclusive rights that come with the grant of a patent, others will be able to use the disclosed invention, without undue experimentation, once the patent expires.
In 1993, when China began granting patents for the chemical compounds of pharmaceutical products, China's Patent Office (since renamed as SIPO) adopted Examination Guidelines which were very similar to the U.S. approach. [SLIDE 10 - Comparisons with Chinese Practice - Sufficiency of Disclosure] However, since 2001 these guidelines have been amended. In 2001, and more severely in 2006, the sufficiency of disclosure standard was changed from one under which the applicant was required to "sufficiently" disclose the use and technical effect of the invention, or compound, to one in which the applicant was required to "completely" disclose the invention.
In 1993, the disclosure had to be such that "a person skilled in the art can carry it out," a standard that is seemingly similar to the U.S. practice of requiring that the disclosure "teach those of ordinary skill how to make and how to use the invention." [SLIDE 11 - Comparisons with Chinese Practice - Ordinarily Skilled in the Art] In 2001, the standard was changed to provide that the disclosure should include "qualitative or quantitative laboratory test data (including animal test) or clinical test sufficient to prove that the technical solution can achieve the forecasted technical solution or effect."
I mentioned before that the time between the discovery of a promising compound product and the completion of human clinical trials can be quite lengthy. [SLIDE 12 - Drug Discovery and Commercialization Timeline Again] This means that it is standard practice in the industry to seek patent protection for compound inventions prior to, or early in, the clinical trial process. The USPTO requires that the compound's utility be demonstrated such that one "ordinarily skilled in the art," or one generally familiar with the field of technology, would recognize the feasibility of the compound's usefulness as a therapy. We do not require the clinical trial data that proves that the compound is safe and effective.
In fact, the way the clinical trial system works, once a compound is approved as an investigational new drug by the U.S. FDA, the first human trials are designed primarily to determine whether the compound is safe for use in humans. It is not until the third and most costly phase of clinical trials that the innovator begins rigorously determining whether this promising compound, for which it has invested so much, is actually going to work as a therapeutic drug.
The revised Examination Guidelines that SIPO has adopted has led to a growing number of pharmaceutical patent applications being rejected because the applicant has not "completely" disclosed the invention. Another change in the Examination Guidelines related to the requirement of Article 26.3 of China patent law is that supplemental data, or information provided to the patent office after the date of filing the patent application, is no longer allowed. [SLIDE 13 - Comparisons with Chinese Practice - Supplementation of Data]
In 1993, supplementing data regarding usefulness or effectiveness of the invention after the filing date was allowed, but it had to relate to a use or effect that had been "implied in the original specification so that a person skilled in the art is able to deduce directly; or it is use that can be deduced directly from the prior art." Again, this is very similar to the U.S. standard that allows post-filing evidence to address doubts the patent examiner may have about the utility of the invention, so long as such evidence or data "pertains to the accuracy of a statement already in the specification."
In 2001, the language referring to supplementing data was removed from the Examination Guidelines, and in 2006 a new provision was added, stating that "embodiment and experimental data submitted after the filing date shall not be taken into consideration." This provision, maintained in the 2010 version of the guidelines, effectively prevents the examiner from requesting any additional information to allay doubts regarding the utility of the invention or the sufficiency of disclosure of the application.
Going forward, with the heightened standard of what is required for disclosure in the first place and the prohibition against providing any supplemental data to the examiner, many patent applications for important biopharmaceutical compounds may be rejected. This is the way the issue was summarized in the United States in one of our leading cases on the subject, In Re Wands:
"...it is well established that enablement requires that the specification teach those in the art to make and use the invention without undue experimentation.
Whether undue experimentation is needed is not a single, simple factual determination, but rather is a conclusion reached by weighing many factual considerations."
So let me take you through a few examples of what may constitute undue experimentation, and see how you would answer these questions. The first and perhaps easiest example is for a patent that does not actually involve the human body's reaction to a new chemical ingredient. So the question is, how much experimentation is required if the proposed invention deals with mechanically varying an electrical current?
The answer is very little, because general laws of physics or engineering would apply, and most likely no additional experimentation would be required. This has, however, occasionally resulted in the rejection of applications for inventions related to electrical circuitry because the disclosure does not provide enough information on how to practice the invention. Simple box diagrams that fail to indicate how the components operate and interoperate would require undue experimentation to replicate. On the other hand, it is the uniquely unpredictable factors in the human body which mandate some form of experimentation to support an application for an invention.
Now, suppose an inventor develops a new heart valve. The new valve may look like it would work in a human being. However, the applicant has only submitted data on how this heart would work in a pig. Should the patent be granted?
If you were challenging the patent, you might argue that human use of the valve was not enabled because at the time of filing, the invention had only been tested in pigs and further design changes and developmental work were required. However, in this case our national patent appeals court, the Court of Appeals for the Federal Circuit, held that human testing is not necessary to enable use in humans. Indeed, when experimentation on humans is inappropriate, enablement may sometimes be met by evidence from animal tests or in vitro data. In that particular case, our courts determined that pigs were a standard experimental animal for heart-valve research intended for human use and that the patent should be granted.
Having enablement requirements that are too demanding could therefore have adverse implications for an innovative industry. Once again a balance is required-to require the right amount of data by the patent office, without it becoming like a marketing approval agency.
Now another question can also arise: if China wants to become an innovative economy, should China change its standards for data disclosure? Moreover, how should any new standards be applied? Should the narrow standards be applied retroactively to already issued patents? We believe that the answer is very clear: standards should be predictable and transparent. If China wants to encourage innovation, then these standards should become clearer over time based on the facts of each case.
If standards become more demanding, or if China's standards become more demanding compared to other countries, then inventors will likely find ways to innovate in those countries where they can receive protection earlier. Moreover, if the new guidelines are applied retroactively, innovators with patents that were previously granted can be placed in a hopeless situation.
These innovators supplied the information required under the previous guidelines, which may no longer meet the sufficiency of disclosure requirements, and they are now no longer allowed to supplement their original disclosures with the necessary information, whether or not such information was at hand at the time of filing. This situation can expose innovative pharmaceutical companies, both foreign and domestic, not only to invalidation charges by interested generics firms who wish to market innovative products, but also to a form of extortion by entities that simply wish to extract settlements from patent holders.
None of this is good for innovation in China. In fact, China's Law on Legislation, Article 84, generally prohibits the retroactive imposition of new standards, and we hope that this law also applies to patent grants. The USPTO has raised this issue with SIPO on several occasions over the past few years. We know that SIPO understands this issue well, and we are confident that as the expert agency on IPR in China, they understand the harm that this practice may have on the development of the innovative biopharmaceutical sector here in China, and that an appropriate balance can be struck.
I want to emphasize, though, that it is often misguided to consider IPR as pro-innovator and anti-generic. The generic industry relies on the innovation of R&D-based biopharmaceutical firms. In fact, there is a sophisticated and important balance to be made if a country wishes to stimulate innovation. Patents are limited in time and scope, and they fundamentally represent a kind of social contract: as I stated earlier, the government agrees to offer a right to exclude others from practicing an invention for a limited time in exchange for a disclosure of that invention, which will enable the public to practice the invention once the patent expires. The patent system allows generic firms to enter the market once the patent protection expires or, even better, serves as an incentive for generic firms to invest in R&D capabilities to design around and create new products, elevating them to the ranks of innovative firms.
This balance in social needs has been refined in laws such as our Hatch-Waxman Act, which attempts to create a balance between generics and innovators. Hatch-Waxman both extended the effective term of patents for innovative products and reduced the effort, cost, and time required to develop and market generic products, in order to stimulate generic competition and reward innovators for the risks they undertake. Social needs are also addressed through our Bayh-Dole regime, which recognizes that vesting IP rights in the party that conducts government-funded R&D can contribute to society by stimulating innovation.
Still another way that innovation is encouraged is in the rules regarding sufficiency of data in our patent law. These rules create a balance between our patent office and our regulatory agencies, by recognizing that patents should be granted if a patent is sufficiently disclosed, but that such disclosure need not, and should not be of the same scope as that required for regulatory approval. Instead, the disclosure need only be adequate to enable one skilled in the art to practice the invention without undue experimentation. Moreover, rights should be settled and where possible, not retroactively revoked.
This has been the experience in the U.S., where, as I already mentioned, despite, or rather because of our IPR system, we not only have the world's leading capabilities in biopharmaceutical innovation, but one of the most attractive and lucrative generics markets as well. IPR protection is not a zero-sum game, and we strongly believe that a return to the 1993 Examination Guidelines with respect to Article 26.3 would lead to a win-win scenario in which the developing innovative industry here in China would be given a boost, while generic firms will continue to flourish. In fact, we find it rather curious that China would make it more difficult to protect innovative pharmaceutical products at the very time it is struggling to become an innovative economy.
While of course there are domestic parties who are interested in this issue-and I hope I can count on the support of SinoPHRDA and its member firms in encouraging a timely and meaningful change to this policy-it is also important to note that this is an increasingly urgent issue for U.S. and other foreign innovative biopharmaceutical firms, for the USPTO, and for the U.S. government generally. We hope that our close, strong, and friendly relationship with SIPO and other agencies such as MoST and MofCOM can help bring about the necessary resolution of this issue.
In conclusion, I want to step back and emphasize that despite our urgent concerns regarding Article 26.3 and our continued advocacy for broader amendments along the lines of our own Hatch-Waxman policy balance, we remain committed to a cordial but frank relationship with SIPO and the other Chinese government entities responsible for IPR and innovation policy here in China. These issues are important for both of our countries, and mutual cooperation remains essential.
My time is almost up, but before I conclude I'd like to show you a photograph of an interesting man. He was the first Chinese person to receive a medical degree from a U.S. medical school. His name was Mei Jinkui. Not only was he the first to receive a medical degree, he was also the first Chinese person to apply for a patent in the United States, back in 1907, as a "subject of the Emperor of China," for an improved nutcracker for chestnuts. [SLIDE 16 - First Chinese Patent Applicant in the U.S. - Dr. Jin Fuey Moy]
Technology has changed since then, and we know there is sophisticated research and development occurring in China. We look forward to receiving more of your patent applications in the United States! As I have noted in the past, the USPTO and SIPO now account for approximately 50 percent of all patent applications in the world. From the USPTO's perspective, as we together carry such a large share of global patent applications, we need to both be fully committed to the global IP system. We may not always agree on policies and strategies, but having another partner emerge who is committed to the development of the global IP system is a welcome development.
As I stated in the beginning of my remarks, this remains an exciting time for innovation in China, in the biopharmaceutical sector specifically and more broadly. It is a great time to be young and studying in the field of the life sciences. The policy issues that China is grappling with as it forges ahead to become an innovation-based economy are complex, the challenges great, but the opportunities even greater. By building on the close cooperative relationship between the USPTO, SIPO local IP offices like the Jiangsu IP Office that graciously helped organize this event, and important private sector organizations like SinoPHRDA and others, there can be increasing opportunities to exchange information, resolve differences and learn from one another as our great countries continue to refine our 21st-century innovation systems.
Thank you for your time and attention today. It has been a pleasure speaking to you, and I look forward to answering your questions.
# # #