Guidance on the Specific Mechanism

Last month, the Advocate General gave his opinion ¹ on how the Specific Mechanism should be interpreted following a reference from the English Court of Appeal in the Merck v Sigma² case.

In summary:

• What should parallel importers of pharmaceuticals from the countries which joined the EU in 2004 do? Under the Specific Mechanism, they must give one month’s prior notice to the patent or supplementary protection certificate (“SPC“) owner or exclusive licensee of their intention to import and market pharmaceutical product from an accession state. It does not matter who provides this notification; what is key is that the potential infringer is identified in the notification.
• What should patent/SPC owners and exclusive licensees do? They must respond to this notification within one month demonstrating an intention to rely upon their rights and to object to that import and marketing. If this is not done, the product may be lawfully imported and marketed from the accession state. They cannot rely on their rights under the Specific Mechanism unless and until they have responded.

The next step is to see if the Court of Justice of the European Union (the “CJEU“) follows this opinion.   

Background to the Specific Mechanism³

Free movement of goods versus IP rights

A fundamental principle of the EU is the free movement of goods.⁴ Parallel imports from one EU member state to another are typically done to exploit price differences between those states – for example, products may be bought in one member state where there is no patent or SPC protection and prices are lower due to generic competition and then imported and sold in another member state at a higher price. IP rights cannot be used to prevent the parallel import of protected goods that have already been put on the market in a member state by the IP rights holder or with his consent – the IP rights holder is said to have exhausted his rights.⁵

The Specific Mechanism

A number of the 2004 EU accession member states had not previously permitted patenting of pharmaceutical products.⁶ This meant there would be cases where a pharmaceutical company had filed for product patent protection in an ‘old’ EU member state but, at that time, equivalent protection had not been available in the accession state. Pharmaceutical companies were obliged to put their products on the market in the new accession states but, under normal EU rules, they could not prevent parallel import from a new accession state to an ‘old’ member state. The Specific Mechanism addresses this – pharmaceutical product patents and SPCs can be used to prevent parallel imports from a new accession state, if: (i) they were filed when the accession state did not permit that sort of protection; and (ii) the person intending to import or market the product has given one month’s prior notice to the holder or beneficiary of the patent or SPC.

Background to the Merck v Sigma case

The AG’s opinion

Four questions were referred to the CJEU on the interpretation of the Specific Mechanism.

Questions 1 and 2: What are the conditions for reliance on the Specific Mechanism?

The short answer: Patent or SPC holders or beneficiaries must respond to a notification of an intention to import and market pharmaceutical products under the Specific Mechanism. They cannot rely on their rights under the Specific Mechanism unless and until they have responded.

Analysis:
The AG summarises that the first two questions are essentially asking the CJEU to “rule on the legal consequences flowing from silence on the part of the patent owner, and for a period of more than one month, once the notification provided for in the…Specific Mechanism has been provided“.   

The AG’s opinion on is that “a patent owner, duly notified, of an intention to import or market pharmaceutical products covered by the Specific Mechanism…is required to respond to such notification and demonstrate an intention to oppose the proposed import and marketing within [one month] in order to be entitled to enforce any restriction on the importation of the products concerned“.   This does not mean that the owner or beneficiary is forever precluded from relying on his rights if he fails to respond. Rather, the owner or beneficiary is prevented from relying on his rights for the period before he informs the importer of his intention to rely on those rights.

The AG’s view is that the wording of the Specific Mechanism is “not very helpful”  in answering the first two questions. He reaches his opinion based on a “purposive and systematic interpretation of the Specific Mechanism” that “seeks to ensure that the legitimate interests of the patent owner are safeguarded”. Any exceptions or derogations from fundamental EU principles must be “interpreted restrictively with reference to the Treaty provisions in question and must be limited to what is absolutely necessary in order to attain its objective“. 

Accordingly, the potential parallel importer under the Specific Mechanism also has a “legitimate interest protected by EU law to know, in clear terms, his own legal position vis-à-vis the patent owner. Therefore, the entitlement of the latter to invoke and rely upon the rights provided for in the Specific Mechanism must be construed as being conditional on the patent owner having reacted to the notification received and having informed the notice provider that he opposes the proposed importation and marketing of the pharmaceutical product in issue“.

Question 3: Who provides the notification?

The short answer: It does not matter. The AG’s opinion is that while it is important for the patent owner that the potential infringer is identified in the notification, “precisely who provides the notification is irrelevant from a legal point of view“.

Analysis:
Again, the AG applied a purposive and systematic interpretation of the Specific Mechanism. What is important, as the Czech Republic stated in its observations and with which the AG agreed, is that the “objective of the notification requirement under the Specific Mechanism is to give the patent owner the option of initiating, before commencement of importation and marketing, judicial proceedings to prevent it“.

Question 4: Who must the notification be given to?

The short answer: The notification must be sent to the “holder of the patent or the [SPC] or to a person who, in accordance with national law, may enforce these rights“.

Analysis:
The Specific Mechanism states that the one month’s prior notification must go to the “holder or beneficiary” of the patent or supplementary protection certificate. Therefore who should receive the notification is clearly identified in the legislation. However, while it is clear that the “holder” is the proprietor of the patent or SPC, the meaning of “beneficiary” is “less precise and is not a term generally used in the intellectual property acquis“. The fourth question addresses who is covered by the term “beneficiary” – in particular, whether this is limited to those who have a legal right under national law to enforce the patent or supplementary protection certificate or whether this also includes the marketing authorisation holder of the relevant product, where that holder is in the same corporate group as the actual holder or beneficiary of the patent or SPC.

The Specific Mechanism refers to “the holder, or his beneficiary, of a patent or [SPC]” who “may rely on the rights granted by that patent or [SPC]“. The AG’s view was that it therefore follows that the “notification must be sent to one of the persons or entities which may rely on the said rights and take action to enforce them under national law” which must be “limited to the proprietor, or the exclusive licensee“. As the Czech Republic stated in its observations and with which the AG agreed, “because the very purpose of the notification is to enable the patent owner to rely on his patent rights, the notification must be addressed directly to him, or to the person who in accordance with national law may enforce those rights“. The AG did not agree with Sigma’s position that this is an unreasonably difficult requirement since these identities are easily available on public patent registers.

Next steps

We must now see if the CJEU follows the AG’s opinion on the obligations of the relevant parties under the Specific Mechanism and how the English court applies that to the Merck v Sigma case. The CJEU ruling should be handed down in the next few months.

References

1 Case C-539/13, Opinion of Advocate General Jääskinen delivered on 23 October 2014

2 [2013] EWCA Civ 326

3 The Specific Mechanism is in Chapter 2 of Annex IV to the Act of Accession 2003

4 Article 34 of the Treaty on the Functioning of the European Union (the “Treaty”). IP rights are an exception to this principle, in certain circumstances (Article 36 of the Treaty).

5 While the IP rights holder cannot prevent parallel import, there are conditions that the importer must comply with for any product re-packaging.

6 These accession member states had only permitted the patenting of the processes for making such products – a less effective form of protection because it only protects the particular claimed process whereas a product patent protects the claimed product, irrespective if how it is made.