European Union: CJEU Clarifies Application Of The Specific Mechanism

Last Updated: 17 April 2015
Article by Beatriz San Martín and Philip Bilney

A pharma case ruling has clarified the derogation of exhaustion of patent and SPC rights through the 'Specific Mechanism', explain Beatriz San Martin and Philip Bilney:

On 12 February 2015, the Court of Justice of the European Union (CJEU) delivered its decision on the questions referred to it by the Court of Appeal in C-539/13 Merck Canada Inc, and Merck Sharp & Dohme Ltd v Sigma Pharmaceuticals plc on the interpretation of the Specific Mechanism, a provision which enables holders of patents and supplementary protection certificates (SPCs) of pharmaceutical products to prevent parallel imports of those products into the UK from certain new member states.

The decision provides useful guidance to owners or beneficiaries of patents and SPCs and to parallel importers as to the procedure under the Specific Mechanism and its enforceability.

Background

One of the key principles upon which the European Union is founded is the free movement of goods. This has resulted in the development of the doctrine of exhaustion of rights which serves to restrict the right of a patentee to bring proceedings for infringement in a member state where the patentee has already consented to the marketing of the goods in question in another member state. The doctrine is considered to be fair since the patent owner should have already been compensated adequately in the member state from which the parallel importation originated, or he could have been compensated had he duly sought protection there.

A difficulty with this doctrine was identified when the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia and Slovakia ("new member states") sought to join the EU. Prior to their accession to the European Union in 2004, the level of protection afforded to holders of some patents and SPCs for pharmaceutical products was lower than that enjoyed by them in existing member states.

Pharmaceutical companies were facing the prospect of parallel importation of their products from new member states to existing member states in circumstances where: (i) equivalent patent or SPC protection had been unavailable in the new member states; and (ii) inadequate compensation had been received from the new member states. To remedy this problem and to achieve a balance between effective protection of patent rights, and the free movement of goods, the Specific Mechanism was introduced as a specific derogation to the doctrine of exhaustion of rights.

The Specific Mechanism

The Specific Mechanism is contained within Chapter 2 of Annex IV to the Act of Accession of 2003 and consists of two paragraphs.

The first paragraph allows the holder (or his beneficiary) of a patent or SPC for pharmaceutical product to prevent the parallel importation of that product from any of the new member states, even if it had been put on the market in those new member states by him or with his consent, provided that: (i) no equivalent patent or SPC protection was available in the relevant new member state at the time of filing; and (ii) the product still enjoys patent or SPC protection in the member state(s) into which the product being imported.

The second paragraph concerns the potential importer and states that any person intending to import or market a pharmaceutical product covered by the first paragraph must notify the rights holder at least one month before applying to the relevant authority for an import licence.

The facts

The first and second claimants (together referred to as "Merck") were the holder and exclusive licensee respectively of a European patent and SPC covering montelukast sodium which is used as an active ingredient in Merck's commercial product Singulair, a prescription medicine used in the treatment of certain asthma conditions in adults and children aged 12 months and older. The SPC expired on 24 February 2013.

Sigma, the defendant, began importing Singulair into the UK from Poland in a form repackaged by Pharma XL (an associated company of Sigma) in 2010. Pharma XL had previously notified the second claimant of its intention to import Singulair on several occasions, the first being on 22 June 2009, and the last being on 15 September 2010.

A few months later, on 14 December 2010, Merck wrote to Pharma XL objecting to the parallel imports of Singulair. Upon receiptof that letter Sigma ceased sales of Singulair imported from Poland. Sigma had imported and sold in excess of £2m of Singulair and was left in possession of over £2m of stock, the majority of which had already been repackaged for the UK market.

In 2011, Merck brought infringement proceedings before the Patents County Court (PCC)1 in reliance on the Specific Mechanism which found in its favour.

Sigma appealed to the Court of Appeal. Both parties accepted that the Specific Mechanism applied but they disagreed as to the manner in which the protection may be enforced. Sigma was of the view that the holder, or beneficiary of the relevant patent or SPC must demonstrate his intention to rely on the protection afforded by the Specific Mechanism, whereas Merck was of the view that it arises automatically without the need to conform to any formal requirements. The Court of Appeal felt it necessary to seek guidance from the CJEU on the interpretation of the Specific Mechanism and so referred four questions.

The CJEU decision

Questions 1 and 2: notification by the holder or beneficiary of a patent or SPC?

The CJEU decision (like the opinion of Advocate General Jääskinen delivered on 23 October 2014) combines the first two referred questions as asking whether the Specific Mechanism requires the holder, or beneficiary, of a patent or SPC to give notification of his intention to oppose the proposed importation before invoking his rights under the Specific Mechanism and, if so, how such prior notification is to be given.

The CJEU ruled that the Specific Mechanism (in particular the second paragraph), "must be interpreted as not requiring the holder, or beneficiary, of a patent or supplementary protection certificate to give notification of his intention to oppose a proposed importation before invoking his rights under the first paragraph of that mechanism.

"However, if such a holder or beneficiary does not indicate such an intention during the one-month waiting period laid down in the second paragraph of the mechanism, the person proposing to import the pharmaceutical product in question may legitimately apply to the competent authorities for authorisation to import the product and, where appropriate, import and market it.

"The Specific Mechanism thus denies that holder or his beneficiary the possibility of relying on his rights under the first paragraph of the mechanism with regard to any importation and marketing of the pharmaceutical product carried out before such an intention was indicated."

Question 3: who must give notification under the Specific Mechanism?

Question 3 sought to clarify who should give notification under the Specific Mechanism as notification in this case was given by Pharma XL rather than the importer, Sigma. The CJEU ruled that the Specific Mechanism," is to be interpreted as not requiring the person intending to import or market the pharmaceutical product in question to give notification himself, provided that it is possible from the notification to identify that person clearly."

Question 4: to whom must notification be given?

The CJEU surmised the fourth question as asking to whom must the notification provided for in the second paragraph of the Specific Mechanism be given. The CJEU ruled that it, "must be interpreted as meaning that the notification must be given to the holder, or beneficiary, of the patent or the supplementary protection certificate, the latter term designating any person enjoying the rights conferred by law on the holder of the patent or the supplementary protection certificate."

Comment

On the whole, the CJEU has followed the Advocate General's opinion. However in respect of question 1 and 2, the CJEU went slightly further. A patent or an SPC holder or beneficiary cannot rely on his rights under the first paragraph of the Specific Mechanism until notification is given to an importer of his intention to do so. Such notification is, however, not time limited to the one month period prescribed in the second paragraph of the Specific Mechanism. Consequently, an importer that has followed the procedure under the second paragraph of the Specific Mechanism will not be liable for patent or SPC infringement unless and until the patent holder or beneficiary provides the necessary notification.

The case will now go back to the Court of Appeal unless of course the parties agree a settlement on the basis of the CJEU decision. The CJEU appears to have sought to strike a balance between, on the one hand, protecting the legitimate rights of patent and SPC owners and beneficiaries, and, on the other hand, providing certainty to third parties who correctly notify owners or beneficiaries of patents and SPCs under
the Specific Mechanism of their intention to import or market a pharmaceutical product.The decision provides some much needed clarification as to the mechanics of how the system should operate which should assist both holders and beneficiaries of patents and SPCs for pharmaceutical products and parallel importers.

Assuming the Court of Appeal holds that the notifications by Pharma XL to the second claimant complied with paragraph 2 of the Specific Mechanism, as clarified by the CJEU in its answers to questions 3 and 4, it would appear the earliest Merck could be deemed to have indicated to Sigma of its intention to rely on its rights under the Specific Mechanism is its letter of 14 December 2010. If this is correct, any relief available to Merck will be limited to infringing activities after this date when Sigma ceased any further sales. Merck's delay in responding to the notification letters may therefore prove costly. While the facts suggest an administrative error is to blame for not responding to the first notification letter, it is unclear why they did not respond more promptly to the subsequent notification letters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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